Articlegreen2017

Backing the horse or the jockey?: Due diligence, agency costs, information and the evaluation of risk by business angel investors

36 citations0/0 files storedENLIGHTEN (Jurnal Bimbingan dan Konseling Islam)

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

Abstract

This paper explores the argument that business angel investors are more concerned with managing and minimising agency risk than market risk. Based on data on the due diligence process from a survey of business angels in the UK, the paper concludes that business angels do view entrepreneur characteristics and experience as having the greatest impact on the perceived riskiness of an investment opportunity. Further, they emphasise personal and informal over formal sources of information in the due diligence process, and seek information on both the entrepreneur and the venture in determining valuation. Indeed, the reliance of business angels on short-term and subjective information to value investment opportunities leads to the conclusion that their approach to valuation is not a function of the conventional protocols of financial analysis, but of personal relations and assessment.\n\nKeywords:\trisk, investment decision-making, due diligence, business angel, agency costs

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1985Economic Action and Social Structure: The Problem of Embeddedness 1991The Theory of Capital Structure 2002Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence 2001Trust, Control, and Risk in Strategic Alliances: An Integrated Framework 1985Criteria used by venture capitalists to evaluate new venture proposals 1994Toward a Model of Venture Capital Investment Decision Making 1993Venture capitalists' decision criteria in new venture evaluation

Cited by

2020Stairway to heaven? rethinking angel investment policy and practice 2022Startup ventures and equity finance: How do Business Accelerators and Business Angels’ assess the human capital of socio-environmental mission led entrepreneurs?2022Selection of Sustainability Startups for Acceleration: How Prior Access to Financing and Team Features Influence Accelerators’ Selection Decisions

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