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Angel investors: the impact of regret from missed opportunities

Abstract

As suppliers of critical risk capital, angels are routinely faced with a multitude of investment opportunities and typically invest in less than 20% of these prospects. Angels need to access these opportunities, decide which investments to pursue, and try to predict future winners and losers all within an environment typified by a high degree of information asymmetry. This research examines the real-time actions and decisions of angel investors and the effect of the investment regret or inaction on future investment decision-making. Angels who missed a past opportunity that subsequently realized a positive return are significantly less likely to invest in subsequent similar opportunities. Also, the dynamism of the market and the experience of the investor play important roles in influencing subsequent investment decisions once an investor has missed an opportunity. This research adds a level of granularity by identifying a new and potentially influential dimension—missed opportunities are an influential force in angel investment decision-making.

Plain English Summary

Ever think about those investments that you passed on, especially the ones that were big hits? The research adds a level of granularity to investing in start-ups—missed opportunities are an influential force in angel investment decision-making. This research examines the real-time actions and decisions of angel investors and the effect of the investment regret or inaction on future investment decision-making. Missed investment opportunities may include implicit costs, such as missing future lucrative opportunities, and an awareness of these implicit costs can lead to better decision-making in angel investing. Angels who missed a past investment opportunity that subsequently realized a positive return are significantly less likely to invest in similar opportunities and thus the angel’s investment history does matter in that past decisions influence future investment decisions. Angels should calibrate their future decision-making by realizing the impact of missed opportunities.

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Proprietary data collected from angel investors participating in an experimental format, thus data not publicly available.

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Acknowledgements

The author wishes to thank Wan-Chien Lien, Laura Hill, and two anonymous reviewers for their contribution to this research and Will Drover, David Williams, and Matthew Wood for their contributions on a previous version of this paper.

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Correspondence to Jeffrey Sohl.

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Sohl, J. Angel investors: the impact of regret from missed opportunities. Small Bus Econ 58, 2281–2296 (2022). https://doi.org/10.1007/s11187-021-00512-6

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  • DOI: https://doi.org/10.1007/s11187-021-00512-6

Keywords

  • Angels
  • Investment decision-making
  • Regret
  • Missed opportunities

JEL Classifications

  • L26
  • M13
  • G11
  • G24