Please enable JavaScript.

Coggle requires JavaScript to display documents.

Investor Decision-Making (Angel investor (Investment Critiera (Objective…

- - - - Entrepreneur
        
        Enthusiasm
        
        Highly rated by angels
        Sudek (2006)
        Van Osnabrugge (1998)
        
        Trust
        
        "Beyond conflict, issues of trust and trustworthiness represent important questions for researchers."
        White & Dumay (2017) p 206
        
        Highly rated by angels
        Sudek (2006).
        Van Osnabrugge (1998)
        
        BAs reject opportunities that don't meet desired return or risk levels.
        
        BAs do not trade risk for return (contrary to common wisdom) - BAs assess entrepreneur behaviors and decisions to measure risk (management and full venture failure).
        
        BAs reject entrepreneurs who display low levels of capabilities, experiences or traits.
        
        BAs likely to reject entrepreneurs who damage trust but entrepreneurs can overcome this if BAs believe they can put appropriate behavioral controls into place.
        (Maxwell, 2011)
        
        Leadership
        
        Leadership quality effects expected return.
        Bern (2016)]
        
        Expertise
        
        Highly rated by angels
        Van Osnabrugge (1998)
        
        Positive affect for entrepreneur
        
        Highly rated by angels
        Van Osnabrugge (1998)
        
        Track record/abilities
        
        Focused on decision stage. Entrepreneur's track record and abilities are important.
        
        Entrepreneur/mgmt team, marketing, and finance most likely reason for rejection.
        
        Deals get rejected for a cumulation of deficiencies.
        (Mason & Harrison, 1996)
      - Management team
        
        Highly rated by angels
        Sudek (2006)
    - - Revenue Potential
        
        Highly rated by angels
        Sudek (2006)
        Van Osnabrugge (1998)
      - Potential Exit Routes
        
        Highly rated by angels
        Sudek (2006)
      - Return vs Risk
        
        Angels rely on return expectations not risk considerations.
        Bern (2016)]
    - - "BAs are the only investors who invest primarily in those entrepreneurial firms needing less than US$500,000..."
        (Osnabrugge, 2000 p 92)
  - - - Gut
        
        Angel investors emphasize subjective perceptions versus other investors.
        Aernoudt, 1999
        Morrissette, 2007
      - Heuristics
        
        Angels use heuristics to quickly make decisions.
        Maxwell, Jeffrey & Lévesque (2011)
        Smith, Harrison, & Mason (2010)
    - - (Maxwell, Jeffrey, & Lévesque, 2011)
        
        Abbreviated break deal process into following stages:
        1) Deal Origination: trusted contacts refer fund seeking entrepreneurs to an investor;
        2) Selection stage: When most deals fall through, this more objective stage is where deals are made;
        3) Deal structuring, due diligence, agreement: Relevant claims by the entrepreneur are verified and deal made
        4) Managing;
        5) Harvesting
        (Maxwell, 2011 "Business")
        
        Selection stage
        
        Angels use "elimination-by-aspects" to find fatal flaws and quickly reduce investment opportunities.
        (Maxwell, Jeffrey, & Lévesque, 2011)
        
        Due diligence
        
        Different criteria is used in the selection stage vs the due diligence stage (more subjective, more compensatory)
        (Maxwell, Jeffrey, & Lévesque, 2011)
      - Paul, Whittam, & Wyper (2007)
        
        Stages defined:
        1) Familiarization: Learning
        2) Screening: Screening
        3) Bargaining: Structuring, Agreement
        4) Managing
        5) Harvesting
        Paul, Whittam, & Wyper (2007)
        
        Screening stage
        
        "[For angels] confidence in the entrepreneur behind the project is critical."
        (Paul, Whittam, & Wyper, 2007 p 120)
        
        Familiarization stage
        
        [In familiarization stage] impression management skills of entrepreneurs are critical in raising finance from external investors.
        (Paul, Whittam, & Wyper, 2007 p 120)
        
        Bargaining stage
        
        Angels have less to work with (resources, information, precedent than VCs
        "Faced with these hurdles, we found angels to be intuitive in assessing how much equity they should receive in return for their investment."
        (Paul, Whittam, & Wyper, 2007 p 120)
        
        Managing stage
        
        VCs and angels have different levels of post-investment involvement.
        Angels take a hands-on operational role
        VCs act as strategic advisors.
        (Paul, Whittam, & Wyper, 2007)
      - Entrepreneur matters most at screening stage (mid-process)
        
        Opportunity matters most later in due diligence or funding stage (near end of process)
        (Mitteness, Baucus, & Sudek, 2012)
- - - - 1) Origination
        2) Screening
        3) Evaluation
        4) Structuring
        5) Post investment activities
        (Tyebjee & Bruno, 1984)
    - - 1) Origination
        2) VC firm-specific screen
        3) Generic screen
        4) First-phase evaluation
        5) Second-phase evaluation
        6) Closing
        (Fried and Hisrich, 1994)
- - - - Asymmetries of information where the agent has information that the principal does not have, can cause situations where the agent can use those asymmetries for their own gain and to the detriment of the principal.
        (Osnabrugge, 2000)
      - Incomplete contracts approach
        
        Principal assumes a good contract is too costly and so ex post involvement of the firm is a better approach, where the investor seeks active involvement.
        (Osnabrugge, 2000)
        
        "The ex post allocation of control that matters when investing in a firm. The best way to attain this in the small firm environment may be through active involvement in the investment."
        (Osnabrugge, 2000 p 98)
        
        Angels actively engage their investments post deal, bringing their expertise to bear.
        (Paul, Whittam, & Wyper, 2007)
      - Angel investors are most concerned with the leadership of principals, then the firm's market and products.
        Landström (1998)
      - Angels focus on agency risk.
        Fiet (1995)
        (Osnabrugge, 2000)
      - This study uses agency theory to show that information asymmetry motivates angel investors to put more emphasis on evaluating the passion and strategic readiness of the entrepreneur. They need to find the right entrepreneurs to be successful investors.
        (Hsu, Haynie, Simmons, & McKelvie, 2014)
      - Modern business separate ownership and control, where a principal delgates to an agent. The agent performs for the pincipal and receives some benefit.
        (Osnabrugge, 2000)
    - - Principal-agent approach
        (Osnabrugge, 2000)
        
        Principal uses more extensive contracts to monitor and control agent behavior.
        (Osnabrugge, 2000)