Characteristics and determinants of informal investment in Singapore

Poh Kam Wong · Yuen‐Ping Ho

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Private Equity and Venture Capital Entrepreneurship Studies and Influences Community Development and Social Impact

Abstract

Since Wetzel (1982 Wetzel, W. E. 1982. “Risk capital research”. In Encyclopaedia of Entrepreneurship, Edited by: Kent, C. A., Sexton, D. L. and Vesper, K. H. 140–164. Englewood Cliffs, NJ: Prentice Hall. [Google Scholar], 1983 Wetzel, W. E. 1983. Angels and informal risk capital. Sloan Management Review, 24: 23–34. [Google Scholar]) identified the business angel as a primary source of risk capital, there has been increased interest in the role of informal investors in the formation of new business ventures in the developed OECD countries. However, there remains little known about informal investors in developing or newly industrialized economies such as Singapore. Based on data collected using the Global Entrepreneurship Monitor (GEM) methodology (Reynolds et al., 2002 Reynolds, P. D., Bygrave, W. D., Autio, E., Cox, L. W. and Hay, M. 2002. Global Entrepreneurship Monitor 2002 Executive Report, Wellesley, MA: Babson College, Ewing Marion Kauffman Foundation and London Business School. [Google Scholar]), this paper examines the characteristics of informal investors in Singapore, and analyses the key determinant factors that differentiate individuals who become informal investors from those who do not make informal investments. In particular, we examine if these factors differ depending on the relationship between the investor and entrepreneur. We also investigate the differences between determinants of higher and lower value investment propensities. The findings reveal that knowing entrepreneurs personally was the factor with the strongest influence on informal investing propensity in Singapore. Other findings suggest that informal investing propensity in Singapore is less influenced by demographic factors and income, and more by prior entrepreneurial experience and self-perceived skills with new business formation.

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