The Value-Added Contribution of Business Angels

Abstract

The previous chapter has highlighted the importance which business angels place on being involved in the businesses in which they invest. The excitement and thrills from being involved in an entrepreneurial venture is the primary motive for becoming a business angel. Involvement is also a way in which business angels can minimise some of the potential agency risks involved in investing in unlisted companies. Equally significantly, business angels believe that by contributing their skills, expertise, knowledge and contacts they can enhance the performance of investee businesses, thereby adding value to their investment and at the same time satisfying their need for achievement. It is widely accepted that the economic importance of informal venture capital activity arises as much from this hands-on involvement in the businesses in which they invest as from the finance that they provide to SMEs. It has already been noted (Chapter 3) that most business angels have an entrepreneurial background, having founded, developed and sold one or more businesses. Because of this, they are able to “add a lot more to [a] business than just money” (Timmons, 1990, p. 40). Wetzel (1994, p. 180) observes that business angels provide the entrepreneur “with the benefits of their know-how — most of which they acquired by making their own mistakes in business, the way entrepreneurs learn their most valuable lessons”.