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Introduction

Start-Up

Entrepreneurs who wish to transform their business dreams into reality will one way or another reach out for the external finance. Many new entrepreneurial start-up businesses do not obtain start-up financing (Gruber, 2004; Mason & Harrison, 2004b). Private individual investors with a high net worth, known as business angels, represent the largest source of start-up financing for new entrepreneurial businesses (Aernoudt, 2005a). Establishment of new businesses is vital to the development and growth of the country's economy (Reynolds et al., 2003). Since the first publication on a business angel was published by (Wetel, 1981), many authors have researched on the informal investment market and studied closely monitoring business angels' characteristics, investment criteria and issues related to an investment. According to (Masons & Harrison, 2000), it is cited that over the past generations many researches have been carried out in different countries and compared with each other.

This dissertation will discuss about the mind of an investor and how they operate in terms of investing their financial assets in a start-up business they believe in succeeding. The main reason is to broaden our understanding of investment aspects of a business angel and how an entrepreneur should respond to it. To find out information sources on business start-ups, refer (Appendix 1).

Problem Discussions

Many business entrepreneurs do not have the luxury of initial capital that's needed to start-up a new business as it requires a vast amount of finance equity (Clarke, 2005; Sohl, 2006). How do entrepreneurs find the initial capital and which investor will trust the business ideas and fund the company? What is the difference between a good investment and a poor decision? What are the requirements of a business angel? These are the main issues SME business starters go through in the initial stages of a business (Wiltbank & Boeker, 2007). The answers for all these issues vary depending on several criteria. For example, it could vary due to the type of the business the entrepreneur wish to start, the capacity of the risk involved, the return of investment period and especially the preference of the entrepreneur working alone or with the influence of the investor (Kaplan & Schoar, 2005).

The dissertation tries to reach active business angels' view points on the issues of SME entrepreneurs and investment aspects. The researcher is confident that this thesis will benefit both the business angels and entrepreneurs.

Introduction Of The Research Subjects

According to a survey conducted by the (EIRO), the government's Bolton Committee in its 1971 report clarified that there is no single definition to explain Small to medium enterprises because of the wide diversity of businesses that operate in the United Kingdom. The report also explained that small to medium business varies according to the type of sector it operates. However section 249 of the Companies act of 1985 affirms that a small company will have to attribute at least two of the following characteristics;

  • Turnover less than GBP 2.8 million
  • Total balance sheet less than GBP 1.4 million
  • Employees less than 50

And a medium sized entrepreneur should operate under the following regulations;

  • Turnover less than GBP 11.2 million
  • Total balance sheet less than GBP 5.6 million
  • Employees less than 250

However in real practice, business functions that operate under small to medium terms, take on a range of working definitions depending on their business objectives (Leedy & Ormfod, 2001).

EIRO - European Industrial Relations Observatory

Formal And Informal Venture Capitalists

Venture Capital is also known as "risk investment" (Langberg, 2004). Risk investment is invested as shares and the financier expects a superior “rate of return" to recompense for the amount of risk invested (Kelly & Hay, 2003). There are 2 main types of venture financing in the UK and they are; formal venture capitalists (large financial institutions) and informal venture capitalists (wealthy private investors commonly known as "business angels").

The UK Formal Venture capitalism began in the 18th century (Harding & Bosma, 2007). During that time Entrepreneurs found affluent individuals to get support for their new businesses. This informal tradition of funding eventually formed a business trade by a number of venture capital firms created by many wealthy. Currently there are over 120 venture capital establishments in the UK, which fund billions of cash annually to the UK SME market (Frielinghaus et al., 2005).

Informal venture capitalists are mainly recognized as Business Angels who are wealthy individuals with a high class reputation of managing well run businesses (Masson & Harrison, 2004). As investors business angels bare a larger risk than venture capital firms as they have to be liable for the loss of the investment incase the business they invest lose out. On the other hand venture capital firms have many investors who can be hand in hand to one another in a bad situation (Masson & Harrison, 2004). Business angels are more common in UK where they tend to invest more on SME businesses where banks and venture capital firms decide not to, which will be further discussed under evidence analysis (Madill et al., 2005).

Business angels tend to be get more closer to the entrepreneur with a higher level of involvement in the firms operations, which shows that their choice of target firms are somewhat different than venture capital firms' requirements and business angels' investment decisions are made solely on the basis of the relationship between the entrepreneur and the investor (Masson & Harrison, 2002). Although entrepreneurs could use formal & informal investors at different stages in the business as shown in the (figure 1), it shows where business angels are needed where we will further discuss later on (Aernoudt, R., 1999).

Figure 1: Financial sources and their involving stages

Source: (VENTURE CAPITAL, 1999, VOL. 1, NO. 2, 187 – 195)

Objectives

  • Understand a business angel, an entrepreneur and their relationship in a SME start-up businesses in UK
  • Identify detailed requirements of business angels when it comes to an investment
  • Determine how different countries & cultures undertake investments

Literature Review

This literature review is concerned about the academic groundwork of the research objectives which inquires about investment categories business angels tend to invest in a small to medium sized business sector. It also looks at how different authors have elucidated about the investment natures of different countries like New Zealand, Denmark, Sweden & etc.

In order to give a clear structure of this academic review, it will be categorized into subsections to converse different authors' views about the research objectives. First the review will discuss about the academic Theories of investments. Then it looks at Business angels and entrepreneurs in the UK. Finally the review will investigate different countries' nature of investments in their own markets.

2.1 Theories of Investment

There are several investment theories defined and compared by many authors. This thesis mainly focuses on informal investors who wish to invest on SME start-up businesses. Although Stock market related investment theories are irrelevant for our objectives it will be impolite to ignore discussing all investment theories. Therefore let's investigate the theories and in the later chapters discuss the practical concepts (evidence) used currently by successful investors.

Among the following theories, Efficient Market Theory will be related to investment in stock listed companies and “principal-agent, prisoner's dilemma framework & resource based theory” will be about business angels investing in SME businesses.

2.1.1 Efficient Market Theory (EMT)

According to (Burton Malkiel, 1973), the stock values that show in the stock market almost define where the company is in its territory and how well it performs compared to its competitors. He suggests that stock prices may not always be accurate but it can be correct most of the time. On the other hand few business managers disagree, explaining that there company's values are priced unfairly and stock prices do not accurately replicate the performance of their companies (Burton Malkiel, 1973). The following discussion will communicate what efficient market theory is about and explore the arguments against it. According to (Michael Firth, 1975), it is stated that there were many academic researches carried out to monitor the share price behavior by investment advisory firms and investors to obtain profitable investment strategies.

What is EMT or EMH?

(Burton Malkiel, 1973) explained that Efficient Market Theory (EMT) is also known as Efficient Market Hypothesis (EMH) on a more technical term. This theory is a method of defining how stock values behave the way they do in terms of investment decisions. (Eugene Fama, 1965) later categorized EMH into three sub assumptions and they are as follows;

1. Weak form (EMH)

This method assumes that current stock values replicate all past information about the specific company such as performance measurements, returns & etc. By analyzing the stock's price chart, it can help the investors verify as to what the future holds for the company's stock values (Eugene Fama, 1965).

2. Semi strong (EMH)

The assumption built on this method is that all the publicly available information and historical information replicates the values of a company's stock prices in the market. So the investors could gain more knowledge and confidence through a company's financial statements and recent developments. It will enable the investors to judge the company future performance (Eugene Fama, 1965).

3. Strong form (EMH)

This method expressed that, other than publicly available information, the investors get an inside look into the company which largely reflects the stock value (Eugene Fama, 1965).

Principal Agent Theory

In general terms Principal Agent theory is defined as a business management framework to observe the behavior between employer & contractor or employer & employees (Spence and Zeckhauser, 1971; Ross, 1973). So here this theory can be applied to the business angel & entrepreneur relationship and discuss its implication on the investment process (Jenson and Meckling, 1976; Harris and Raviv, 1978).

In the corporate business, the principal (Business angel) usually appoints the agent (manager) or else make sure the entrepreneur works according to the principal's ideas in the business (Jenson and Meckling, 1976). The principal usually make sure that the agent's business intentions are as similar to him/her (www.financemind.com).

In other words, the principal wishes to make sure that the business runs well and succeed the way he/she believes best (Eisenhardt, 1989). But on the other hand, over an informational advantage the agent could think otherwise for the business. This is where the problem of shared risks arises as (Eisenhardt, 1989) explains, where the Investor (principal) and the agent (manager) could end up having different opinions towards the business.

The agency theory is widely used in venture capitalism (Bruton, Fried & Hisrich, 2000a). Having conflicts due to differences in interests, it is essential to minimize these risks as (Bruton, Fried & Hisrich, 2000b) agrees with Eisenhardt. To reduce these risks investors make sure that they actively monitor the companies they invest and build a better and close relationship with each other (Busenitz, Fiet & Moesel, 2004). According to (Sweeting & Wong, 1997), using a principal agent theory to evaluate a business angel investment is not highly recommended anymore. It is much better to have a mutually agreed relationship. The agency theory shows that money motivates both the principal and the agent (Busenitz, Fiet & Moesel, 2004). But financial motivations or economic factors do not relate business angel's relationship with the entrepreneur in this theory (Wijbenga et al., 2003).

Prisoner's Dilemma Framework (PDF)

This is yet another theory that can be used in an investment study. In this framework there can be either a conflict or a development between the two parties involved (Cable & Shane, 1997). In this theory, both parties can either go in their separate interests and gain a certain pay off or co-operate with each other and achieve a higher pay off (Bruton, Fried & Hisrich, 2000). The prisoner's dilemma framework promises better fitting for the business angels and the entrepreneurs because it does not presume a hierarchical relationship between the two parties (Bruton, Fried & Hisrich, 2000; Cable & Shane, 1997). Still the PDF theory only focuses on the investor – entrepreneur relationship and not any of the business angel investment activities or impacts. It concludes that the theory is not suitable enough to define a business angel & entrepreneur relationship (Cable & Shane, 1997).

Resource Based Theory

The resource based theory has many influences on the entrepreneurship. Business angels can contribute many resources other than cash it self. According to Freear, Sohl and Wetzet (2002), angel investors can contribute five types of resources to an entrepreneur: Human, physical, social, organizational & financial.

Human capital can be taken as angel investors' contribution of business knowledge, skills and business experience to the firm (Erikson & Nerdrum, 2001a). Social capital can be gained when business angels provide their business contacts (Angel networks). By this, the entrepreneur has the opportunity to meet other investors and extend the funding possibilities to the business. Physical resources can be machines or factories and organizational capital can be described as the influence and advice the investors can give for the business for an example making the business improve on its experience (Erikson & Nerdrum, 2001b).

Financial capital consists of the funding provided in the beginning of the start-up phase (Cassar, 2003). By far this presumed to be the best suited theory to define a relationship between a Business angel and an Entrepreneur where all aspects are covered (Rose, 2005).

Summary Of Theories

Looking back at the efficient market theory, Agency theory, Prisoner's dilemma framework and Resource based theory; it seems to be that the “Resource based theory” is the most suitable theoretical framework for the Business angel investments. However the Resource based theory has to be amended with few assumptions: Human capital should be taken as the (knowledge, skills & business experience) investors contribute with (Ardichvili et al. (2002).

Although we discussed the above theories, many researchers have described and tried to apply other similar theories to the investor - investee relationship [Example: Procedural Justice (Busenitz, Fiet & Moesel, 2004), learning and knowledge-based view (De Clercq & Sapienza, 2002), resource exchange theory (Gomez-Mejia, Balkin & Welbourne, 1990)].

All the investment theories have a common characteristic that have only a few relevant investment features in them to the investor-investee concept. To make it applicable for the Business angels and entrepreneurs all these theories should have few amendments and adaptations (Sapienza, Manigart & Vermeir, 1996).

Small And Medium Enterprise (SME)

William Kendall, the Chief Executive of Whole Earth Ltd stated, “SME business is a fantastic place to work. You have to think innovatively to be an entrepreneur. It's thrilling and it's enjoyable.”

According to (European Industrial Relations Observatory) there is no general definition for SME. But the (Government's Bolton Committee, 1971) cited that the characteristic of a SME firm is a self-sufficient business being owned by a single owner with a small market share. The report also stated that the size of the SME changes in different industries.

Although it is hard to give one specific definition for SMEs, it can be measured and classified by numbers (employees & revenue rates). The defining measurements are as follows:

Definitions: (The Department for Business, Enterprise and Regulatory Reform – BERR, UK) has defined SME with 3 types of measurements and those are based on amount of employees:

Micro firms: 0-9 employees;

Small firms: 0-49 employees and

Medium firms: 50-249.

The (European Commission) changed the definition of the SME to increase the partnerships and innovations. The definition which took affect on 2005 is: “ A Micro, Small and Medium-sized enterprise (SME) is made up of firms which employ less than 250 employees and have yearly revenue less than 50 million euro”.

Importance Of SME In The Uk

The country has raised the level of growth productivity in the last era reducing the competition gap between other countries like US, France & Germany (BERR, 2008).

Currently UK is reacting well to the global prospects and challenges. The growth of the SME market increases each year promising to boost the economy of the country. According to (European Business Angels Network (2007) Dissemination Report on the Potential for Business Angels Investment and Networks in Europe), the employment and annual revenue contribution of the SME industry as a whole is more than 50 percent of the total.

The UK government provides necessary support for people to step up and start their innovative business to increase the competition level of the country (www.berr.gov.uk).

The Entrepreneur

Earlier it was discussed that previously recognized agency theories explains that the investor, ensuring a healthy relationship is highly regarded as a successful investment aspect in an investment (Kelly & Hay, 2003). Therefore exploring more about what authors have studied about entrepreneurs and investors is vital.

The difference between a formal venture capitalist and a business angel is that a venture capitalist invests looking at the company and its ability to perform (Schramm, 2004). On the other hand the business angel focuses mostly on the entrepreneur to make sure there can be a good business relationship (Mark and Robinson 2000, p138). The entrepreneur is the only key to get the funding needed for a start-up business. As an entrepreneur, it is vital to gain the investors trust and confidence in the business idea. According to (Osnabrugge & Robinson 2000, p123), it is cited that during a business start-up there is a high percentage of entrepreneurs failing to make good management decisions in the initial stages. It is very sensible for an entrepreneur to seek a business angel as they pay special interest on the business they invest in with all their resources including non-financial contributions. It could help fill all the management weaknesses of an initial stage of the business and save huge amounts of consulting and managerial costs (Mason and Stark, 2004).

Entrepreneur Evaluation

(Osnabrugge & Robinson, 2000) had explained that entrepreneurs should be aware that the investor not only pays attention on the business proposition but also the entrepreneur himself to ensure the safety, confidence, enthusiasm and the ability to depend on the entrepreneur. Trust is something investors work hard to find in an entrepreneur, because they invest large amounts of financial resources on a person they met in a short period of time (Osnabrugge & Robinson 2000, p125). According to a study conducted by Stedler and Peters; entrepreneur's capability to convince the business angel to invest is very important and showed that 81% of business angels has expressed that a positive first impression established in the first meeting as important (Stedler and Peters, 2000).

When it comes to angel investment decisions being made, business angels need to ensure that the entrepreneur should be a proficient manager (Gerald and Joel, 2000).

Loyalty, leadership, reliability and personality are important characteristics that angel investors look into when they evaluate entrepreneurs. An entrepreneur should be able to have those qualities to gain an influence of the investor (Aernoudt 1999 & Sappa 2006). The characteristics that separate a good ownership from a poor is, that if the entrepreneur is able to establish trust and leadership skills with confidence and make the employees follow him/her (Micah Baldwin 2007).

Investors find it comforting to know that the entrepreneurs have invested partly on the business before seeking external investment. This gives the investor the idea that the entrepreneur has given all the effort in the involvement of the process and that the financial value of the business is appreciated (Osnabrugge & Robinson 2000, p127).

According to (Sappa 2006), business angels take lots of time and effort into finding out background information on the entrepreneur to ensure that the owner has the right expertise to manage the business he proposes. (Haines and Riding 1998) corroborates furthermore by adding that the entrepreneur sharing his/her previous business experiences and being much more practical about the business brings more information and confidence to the investor.

Finally all the above characteristics that were discussed are very important for a new start-up entrepreneur to influence investments from professional business angels.

Business Angels

As we have gone through the theories of business angels it is important to know who business angels are in the minds of researchers. A business angel is a highly prosperous individual who can be a business person and willing to invest part of his/hers finance on a promising entrepreneur who has a potential to succeed (Isakssin 2000, Helle 2004).

According to (Harrison & Manson, 1999), there are three eras of business angel researches conducted in the investment business:

First era of business angel research was conducted by United States of America in early 1980s. Authors like; (Landstrom, 1993) from Sweden and (Harrison & Manson, 1992) from United Kingdom repeated the same work by giving out similar results. In this era it was solely concentrated on business angels' thoughts, activities and characteristics (Freear, Sohl & Wetzel, 2002).

Second era enabled researchers to go deep into business angels by investigating their post investment involvements. Theory building up and applying for business angels began in this era. Although there were theories built for business angels, it wasn't developed enough to be completely suitable for the activities of angel investors (Connolly et al., 2006).

Third era will be the era about the future researches of business angels. There were many faults in the previous researches done and they need to be taken in a new direction to make sure the researches investigated will produce good results (Arenius & Minniti, 2005). This would finally make us understand the minds of business angels and match the Business angel – Entrepreneur relationship under changing economy, culture & competition (Connolly, O'Gorman & Bogue, 2006). By the help of (Harrison & Mason) & Swedish researchers like (Sorheim 2005) will enable to investigate on the changing environment of Business angels. This also mean that the theories being found in the previous eras could finally be developed enough to apply on the business angels' current investment methods and get positive results (Gompers & Lerner, 2007).

Characteristics Of Business Angels

Almost all the business angels who actively invest on new businesses have few common characteristics. They all have the main motive to increase the potential of their financial capital (Duxbary, Haines & Riding 1996). But (Landstrom 1993, Osnabrugge and Robinson 2000) explained that all business angels should not be profiled in a similar way because cultures and person to person could make them different to each others ways in terms of making a personal investment decision.

Although there could be many differences between business angels, (Osnabrugge and Robinson, 2000) also stated that there are general motives behind all business angels when it comes to a certain result they expect out of an investment. When Venture capitalists and business angels are taken together it is wide clear that Business angels are individuals who prefer to invest less financial capital than of the formal investors who invest large amounts. Business angels also prefer to invest their money mainly on initial stages of a business (Osnabrugge and Robinson 2000). When it comes to formal investors, they are selective in industries they invest on depending on a lot of information and research. But the Business angels invest on the entrepreneur regardless of what industry sector the business idea would succeed on. They do little research on the industry but heavy research on the entrepreneur they expect to build a trust worthy relationship, because they depend on the entrepreneur much more than the venture capitalists that only rely on the market and the performance of the company (Osnabrugge and Robinson 2000, p63). Furthermore a research conducted in the Norwegian angel market and studies conducted in the US have identified several angel categories.

There could be cultural and economical differences among countries like (UK, Sweden & Singapore) but angel investors do have likely investment standards in those countries (Landstrom 1993). (Freeny, Haines & Riding 1998) explained that the markets which business angels are currently active are where they are wiling to invest more on.

There could be many differences in Business angels' personalities and points of views of the whole investment process. There are studies that showed the “most regular business angel”. It is stated that the age, where successful individuals decide to invest their money on a business is when they get to their 50s. This shows that it is almost a retirement phase from a business point of view. This can be confirmed by a research carried out in Germany where it stated that 95% of BAs were male individuals, 56% were directors or owners of their businesses and 17% were individuals who were in the director board on other organizations (Stedler & Peters, 2003). Even (Osnabrugge and Robinson 2000, p156) supported Stedler and Peters by explaining that the individuals were in director posts and had good business experiences before they decide to move on into personal investments.

Most business angels involve themselves heavily during the initial stages of start-up businesses. They wish to invest near to their homes to make sure of convenience. And Business angels are well educated, wealthy beyond a certain average and expect to have a good life with their feet up on a desk holding a glass of wine, which we all hope to achieve one fine day (Freeny, Haines & Riding 1998).

Although this thesis aims to look at the characteristics of UK business angels, it was clear by all previous studies that there are common statistics about their decisions and behaviors. This tells us that, UK angel investors too are not far from what was described before in the theories. Still it is important to point out few common characteristics of UK business angels;

Common Characteristics Of UK Business Angels

According to (Ardichvili et al., 2002), Business angels in the UK have been or still are active business owners. They invest in more similar markets to what they are operating in, which saves them a lot of time trying to understand the market and the operations.

Like all business angels, UK investors are highly motivated by the return of their investments and the effort (non financial motives) they have put in to the start-up business. They do enjoy being a part of a new business hoping to succeed for the better part of the community and the country (Landstrom 1993).

Furthermore UK business angels prefers and makes sure they invest on new businesses that they could visit regularly, which means they invest in promising firms which will locate geographically near to where they reside (Ardichvili et al., 2002). BAs would rather invest in firms within their residing area, than investing in a location where they find it hard to meet the entrepreneur even though it would double their investments (Harrison, Mason & Robson, 2003). Most British angels prefer their entrepreneurs operate within 100 miles of their homes although investors who invested on technological businesses are willing to travel long distances (www.bbaa.org.uk).

According to Mason, British angels mostly prefer to invest on small businesses during its initial stages where it is not too late to put in not just their finance sources but their advice and experience to get things on the right track. This, in a way gives them satisfaction of being a part of a promising business (Mason, 2002).

After going through the common characteristics of British Angel Investors, it is quite clear that there isn't a major difference compared with the international countries like Sweden and Denmark which will be discussed later. We discussed about Business angels and it is vital to know the categories of their investments.

Investment Aspects Of A Business Angel

One of the objectives of this thesis is to find out how Business angels in UK and other similar countries decide to invest on a certain investment they find it promising. An investor looking for good reasons to decide on an investment is known as Investment Aspects or Investment Criteria (Landstrom, 1993). It is a way of evaluating the business and the entrepreneur to ensure the security and the profitability of the business proposal.

According to the venture capitalism and angel investment comparison carried out by (Osnabrugge & Robinson 2000), it revealed that although there were similarities among their attributes in their investment standards there were a certain amount of dissimilarities which makes business angels favorites for a new start up business.

For an example, venture capitalists are prepared to invest almost in all stages of a business and therefore they look into all the past and probable financial records of the company. On the other hand the business angels much prefer to invest on a start-up phase of a new business where past financial experiences are not so important to them

(Osnabrugge & Robinson 2000).

Most business angels give similar priorities to investment aspects, when it comes to making a decision. With much researches conducted over the past years (Osnabrugge & Robinson 2000) has come up with a selected summary that illustrates the criteria of an investment. The following (Table 1) of twenty-five selective factors are prioritized by well known angel investors;

Priority order

Priority factors for an investment

1

passion of the industrialist

2

Dependability of the industrialist

3

Sales prospective of the product

4

proficiency of the industrialist

5

Entrepreneur(s) first impression

6

Development prospective of the market

7

Quality of the product

8

Benefits of the investment for the investor

9

Niche market

10

Entrepreneur(s) background

11

Expected rate of return

12

Informal competitive security of the product

13

Investor's non-financial contribution

14

Investor's ability to fill gaps in the business

15

High boundaries of the business

16

Low expenses

17

The contest in the industry

18

Possibility for break even without added funding

19

Required amount of funding

20

Overall competitive security of the product

21

Cost to analysis the market

23

Local venture

24

Prospective exit method

25

Investor's understanding of the business & industry

Business Angel Networks

In investment businesses, it is quite common to understand that most entrepreneurs find it hard to reach a potential business angel. It is hard for the entrepreneurs to identify business angels as they keep a very low profile from the public. This problem is solved when business angel networks were introduced to reduce the information gap between investors and investees (San Jose et al 2005).

Usually angel networks have its own information websites where entrepreneurs and investors could meet online and get to know each other and communicate informally (Aernoudt, 1999). Through this process a strong link of communication could be developed where the investors and investees could have a comfortable transaction as they already know each other (Osnabrugge and Robinson 2000, p80). Osnabrugge and Robinson also found that the most essential way for an entrepreneur and a business angel to find each other is contacting a BA Network. Therefore influence of an angel network is very important when it comes to getting a BA to invest on a business.

Exit plan

Exit plan or cash out route is an investment aspect that favors the business angel the most. When there is a negotiation taken place between an entrepreneur and an investor, there usually is an agreement as to when the investor could leave the investment taking the cash out (Stedler & Peters, 2002). When a business angels shows a lot of interest on the exit plan of an investment it shows that there is a need for the entrepreneur to plan out a future exit plan in their business plan (Freeny, Haines & Riding 1998).

(Mason and Harrison, 2002) conducted a Hypothesis test to analyze the exit rate of investors. The results were gauged in groups of IRR achieved in each exit point

IRR – Internal Rate of Return (Measurement of the Return of capital invested)

Business Plan

A business plan can give an investor an idea of where the entrepreneur could be in terms of managing & planning the business (Osnabrugge and Robinson 2000, p133). The business plan is a vital aspect when it comes to investing and finding out how the future

of the business and the return of the investment could look like. (Gerald & Joel, 2000) stated that investors who invest without consulting a business plan end up having poor results.

A business plan should consist of all important financial information, market, growth potential, competitor analysis, possible threats and recommended solutions. Most of the British business angels request for a business plan to calculate the risk they are willing to share with the entrepreneurs (Mason & Harrison, 1996). Therefore it is important for an entrepreneur to come up with a true & promising business plan that can influence the business angel to invest on the firm. To see a standard structure of a business plan, refer (see Appendix 2).

Next we will discuss about the investment standards of other countries and find out how different or similar they are to UK's business angels.

Investment Standards Of Other Countries

As it was discussed earlier, business angels have similar characteristics in most of the countries but it differs a little when economy, culture, policies comes to play. It is quite interesting to understand how other business angels in other countries operate according to their situations because it could give good insights to how they responds to different issues. The example countries which are chosen to discuss next represent each from Asia, Europe & Oceania.

Singapore

All though there were many researches carried out about investment in the past years in countries like UK, US, there were not many researches done in the Asian countries especially in East Asian countries like Singapore. Although there was one simple study conducted by (Hindle and Lee, 2000) that includes investigations of around 20 individual business angels, it was sufficient to achieve a general conclusion (Ho Yuen Ping 2003). Despite of few researches carried out about the Singapore angel market, Global Entrepreneurship Monitor - (GEM) took initiative and conducted a random survey over more than 2 years (2000-2002), among 2000 individual entrepreneurs.

Therefore the following information was analyzed through one study conducted by

(Wong Poh Kam & Ho Yuen Ping, 2003) of NUS Entrepreneurship center.

Characteristics Of Singapore Angel Investors

Typical angel investors are around the age of 35 or below and are mostly male individuals. The educational standard and the annual earnings of these individuals are much similar to those of other successful western countries. But it is believed that Singaporeans do not expect to have high earnings to invest on micro-angel investments. There are high proportions of angel investors who are still working in their industries and are economically active. Therefore compared to other countries, Singapore's most business angels are not retired but still actively run their own business (Wong Poh Kam & Ho Yuen Ping, 2003).

Standards Of Investments

Compared to the rest of the world, Singaporeans pay less interest on investing their money on manufacturing businesses showing a very low percentage of just 5%. On the other hand they favor investing heavily on businesses that run retail shops, restaurants and small hotels. Business angels show an interesting characteristic by not choosing to invest on entrepreneurs who have or waiting to start-up their businesses with their families. This is quite a selective factor when it is compared with universal angels who have no restrictions in investing on family businesses. They are also reluctant to have business relationships with their colleagues, which is completely opposite to the international standard. (Wong Poh Kam & Ho Yuen Ping, 2003)

Singaporeans strongly focus on building a very strong relationship with the entrepreneur they deal with and compared to international business angels, they restrain from investing on entrepreneurs they are not familiar with. In terms of the values of the funding they make, Singaporeans generally invest between 2500GBP and 50000GBP. And just like the global business angels, Singapore's male gender invest much more than females with high risks. (Wong Poh Kam & Ho Yuen Ping, 2003)

Denmark

Studying business angels are difficult in almost every country due to many barriers. And it is because most business angels are mysterious individuals who wish not to be publicly recognized due to their personal reasons. Taking note of that, Danish studies of business angels are restricted and it has been quite difficult to find surveys with large amount of data to compare. Therefore the following information is derived from a successful completed study conducted by the Danish Investment Fund. The DIF has had the opportunity to influence Danish Business Angel Network (DBAN) to reach several Danish business angels to participate in this survey. The authors of this research are Rolf Kjergaard (Head of Economic Research), Glenda Napier (Business Angel Consultant), Jacob Nordstrom Borup (Analyst). The research was conducted in 2002.

DIF - A financial organization that contributes to the development of Danish business and trade.

Characteristics Of Danish Business Angels

According to 2001 records (Rolf, Jacob, & Glenda, 2002) has found that Danish angel investors have moved into joining with other co-investors in partnerships to invest on new start-up businesses. Danish investors prefer to join co-investors much more than the UK business angels but not as much as the amount of investors in the US. Less than 10% of investors among the Danish investors prefer to invest alone which is very unique to this market (Rolf, Jacob, & Glenda, 2002). The Danish business angels and entrepreneurs have poor methods of reaching each other due to lack of information sources.

A general characteristic of Danish angel investors are that they are successful entrepreneurs who own a series of businesses and have strong industrial knowledge &

experience under their expertise. They also prefer investing more on unlisted businesses with both financial and non financial contributions, which gives hope for new entrepreneurs with good business concepts.

Standards Of Investments

Danish investors have unique motives behind their investments. They enjoy being business angels and invest mostly for non financial reasons like as a means of enjoying the pleasure of investing their money on other businesses (Rolf, Jacob, & Glenda, 2002). Some others urges for the self contentment of being engaged in other companies' director boards. They do expect high profits coming out of the business too.

In terms of investment sectors, Danish angel investors invest their money on almost all the industries in the market which is a good development opportunity for the economy balance of the country (Rolf, Jacob, & Glenda, 2002). Compared to other international angel investors who are more selective in investment phases, Danish investors invest in all the main phases of a business including (Seed, start-up, expansion, restructuring, and business transfers) but prefer more on the start-up phase (Rolf, Jacob, & Glenda 2002).

New Zealand

The following survey was conducted by the Government of New Zealand. The research was carried out by Infometrics Ltd to the ministry of economic development. Therefore the information and data that will be discussed are highly recommended and valid.

Characteristics Of New Zealand Business Angels

It is understood that New Zealand business angels are much similar to the general understanding we have gained about angel investors in this thesis. The angel investors are generally aged between 35 & 55 and prefer to invest in businesses not far from their residences.

They further intend to invest on industries they are familiar with and experienced. New Zealand Business angels generally are risky and are willing to invest on entrepreneurs they have not known before but still wish to build a business relationship and expect high returns of investments.

A unique finding of this research is that most of the business angels in New Zealand have shared their experience as entrepreneurs them selves once and most of them had the financial support of business angels to get to where they are (Infometrics Ltd, 2007).

Standards Of Investments

Most business angels in New Zealand intend to invest mostly during the start-up and in the early expansion phases of the business. According to the authors of this research, they stated that although the comments were as such, but in practice the favorite phase of the business is the start-up.

Business angels heavily concentrate on the entrepreneurs' managing skills, commitment for the business and the personality. Noting the previous comment it is common to understand that it's the confidence and the reliability the angel investors strongly look for.

They also expect the product or the business idea to be highly competitive to gain a niche market advantage. A unique characteristic of New Zealand business angels are that most investors expect to motivate the entrepreneur to promote the product to the international market more than having the product/service pushed into the local market and ensure development (Infometrics Ltd, 2007).

Summary

This chapter discussed the theoretical view of the SME industry, UK Business angels and Entrepreneurs which satisfies the first objective of the thesis. Then it was followed by discussing about the investment aspects of a business angel when it comes to making an investment decisions which was the second objective. Furthermore according to the third objective we discussed the characteristics of UK business angels and Business angels in (Singapore, Denmark & New Zealand).

Many authors have defined UK investors to have similar characteristics when compared to the common understandings we have come about business angels.

Research Methodology

Start Up

A methodology is an important part of a research investigation (Saunder et al, 2007) needed for primary research that is undertaken to answer the specific task set for this project. The literature review explains the academic theories of investors & investee relationships and it discusses about business angels and entrepreneurs in the SME. The research methodology helps in understanding the research carried out and answers questions how and why the research was carried out proving with valid, accurate and genuine results. A research is undertaken to understand a problem and could adapt secondary and primary research. This chapter contains the aims and objectives of the research, research method, research design, data collection method, data analyze method and sampling consideration.

The Aims And Objectives Of The Research

The main aim of the research is to widen the understanding of the business angel and the entrepreneur in terms of attracting each other. It also investigates the aspects of business angels investing in SME (Small & Medium Enterprise) in the UK industry and business angels investing in different countries. This research will try find out its objectives.

The research objectives are:

  • Understand a business angel, an entrepreneur and their relationship in a SME start-up businesses in UK
  • Identify detailed requirements of business angels when it comes to an investment
  • Determine how different countries & cultures undertake investments

Research Method

Quantitative methods have been used in this current research. Qualitative research involves the use of qualitative data, such as interviews, documents, and participant observation data, to understand and explain social phenomena. The qualitative method offered an appropriate method because the nature of exploring investor and entrepreneurial behaviors is not suited to predictive statistical methods (Gartner & Birley, 2002; Leedy & Ormrod, 2001). Although methods can produce statistical predictions of social phenomena, the value of a qualitative study is its ability to generate detailed insight into a specific process from the perspective of the participants in a real life context (Gall et al., 2007). The relatively small size of the business angel group, the dynamics of the risky entrepreneurial start-up environment and the unknown interactions among angel group principals are consistent with a focused and detailed exploration of these phenomena (Yin, 2003).

Orlikowski and Baroudi (1991), following Chua (1986), suggest three categories, based on the underlying research epistemology: positivist, interpretive and critical.

Positivist Research

Positivists generally assume that reality is objectively given and can be described by measurable properties which are independent of the observer (researcher) and his or her instruments. Positivist studies generally attempt to test theory, in an attempt to increase the predictive understanding of phenomena (Orlikowski & Baroudi, 1991).

Interpretive Research

Interpretive researchers start out with the assumption that access to reality (given or socially constructed) is only through social constructions such as language, consciousness and shared meanings. The philosophical base of interpretive research is hermeneutics and phenomenology (Boland, 1985). Interpretive studies generally attempt to understand phenomena through the meanings that people assign to them (Walsham 1993, p. 4-5). Interpretive research does not predefine dependent and independent variables, but focuses on the full complexity of human sense making as the situation emerges (Kaplan and Maxwell, 1994).

Critical Research

Critical researchers assume that social reality is historically constituted and that it is produced and reproduced by people (Lee, 1997). Although people can consciously act to change their social and economic circumstances, critical researchers recognize that their ability to do so is constrained by various forms of social, cultural and political domination (Klein, 1994). The main task of critical research is seen as being one of social critique, whereby the restrictive and alienating conditions of the status quo are brought to light. Critical research focuses on the oppositions, conflicts and contradictions in contemporary society, and seeks to be emancipatory i.e. it should help to eliminate the causes of alienation and domination (Klein, 1994) .

This research follows the approach of interpretive. This interpretive approach was consistent with exploratory qualitative methods in organizational studies given the dynamic nature of social interactions in business angel and entrepreneurial organizations (Gartner & Birley, 2002; Hindle, 2002). With interpretive approaches, researchers can immerse themselves into the study situation and interact directly with participants in their natural environment (Leedy & Ormrod, 2001).

Deductive Or Inductive Approach

Based on the literature review and the objectives of this research, this research will follow inductive approach. Deductive methods relying on quantitative data, the information patterns, theories, and trends that emerge from qualitative exploration provide opportunities for a deeper understanding of the subject (Leedy & Ormrod, 2001). Whereas Inductive approach focuses ‘interpretive method' based on observed or elicited views from respondents (Creswell, 2003). This involves observed and empirical data (Saunders et al, 2007) drawn from open questions where respondents can answer them according to their experiences, upbringing, social class, etc.

Current methodological research differentiates between deductive and inductive approaches in organizational behaviour research (Hindle, 2002). In approaching entrepreneurial management studies, Hindle stated,

Positivism is the set of approaches defining social science as an organized method for combining deductive logic with precise empirical observations of individual behaviour in order to discover and confirm a set of probabilistic causal laws that can be used to predict general patterns of human activity. The interpretive approach embraces the systematic analysis of socially meaningful action through the direct detailed observation of people in natural settings in order to arrive at understandings and interpretations of how people create and maintain their social worlds. (p. 581)

Research Design

Research design is the way in which the research is done based on the research aims and objectives. The designs generally adopted are exploratory, descriptive or casual (Leedy & Ormrod, 2001).

Exploratory Design

This research design is used when absolutely nothing on the problem area is known to get background information (Gall et al., 2007). Exploratory design is a research design in which the major emphasis is on gaining ideas and insights. According to (Gall et al., 2007) this design is used in research cases where the problem needs to be defined precisely, relevant courses of action needs to be identified, and obtain insights before conclusions. Here the information will be loosely defined based on research questions rather than hypothesis or measurements. This can have qualitative and quantitative approach (Gall et al., 2007)

Descriptive Design

According to (Creswell, 2003) descriptive design is a research design in which the major emphasis is on determining the frequency with which something occurs. For example, how often users access the Internet in a given month.. This research follows descriptive design as the design features pre-planned and structured research view the information obtained is clear, useful and cost effective (Creswell, 2003).

Casual Design

“Casual design is used to obtain evidence of cause and effect relationships”, (Gartner & Birley, 2002). The research is done based on assumptions of casual relationship. The casual design is also a planned and structured. The factors considered may not be justifiable and the validity in this design is examined through formal research (Gartner & Birley, 2002). Therefore this design is used to draw predictive measures based on calculated assumptions that could predict results. For example, this design is used for assumptive research like analyzing the prices in share market.

For this research qualitative exploratory method is used. A qualitative exploratory method, in contrast to quantitative statistical methods, enables a real life, open-ended, exploratory process to capture and interpret the conceptual themes that might be relevant to the research problem (Leedy & Ormrod, 2001; Yin, 2003). Analyzing behaviour in real business contexts, the exploratory study method offered a more effective approach for studying the current, dynamic working investment environment selected for the study (Yin, 2003).

Sampling consideration

Qualitative sampling allows for in-depth sampling of small groups to understand

behavioral phenomena. In contrast, statistical sampling methods require large numbers of participants to ensure statistical significance (Miles & Huberman, 1994).

Because of the confidentiality most of the business angels do not want to disclose their identity. So it is really hard to conduct lots of interviews. That is why sample size of this study was so small. The participant sample for this study was 3 business angels and 1 entrepreneur. The participant sample participated in semi structured interviews and demographic surveys.

Data Collection Method

In order to achieve the aims and objectives of this research, primary and secondary data were used.

Primary Data

“The search for answer for our research questions, or the tests of our hypothesis to determine whether or not they are supported by the information we collect, may require us to go beyond the examination of existing data.” (Stevens et al, 2001) For this reason we need to have a primary data. Primary data is the data gathered for specific research objectives that is undertaken to obtain results for the research. There are many ways to conduct primary research, for example, questionnaires ,interviews, telephone surveys, email research, smart card research, of which questionnaires is the most used technique. This helps the researchers to understand respondent's opinions and observations that in turn give data for analysis and serve the objectives for the research (Saunder et al., 2007).

In this research, interviews were used as the source of primary data to find the investment aspects of a business angel and how an entrepreneur should respond to it. 3 business angels and 1 entrepreneur were interviewed. Appendix 3 contains the profiles and interview that was conducted with business angels and entrepreneur.

Secondary Data

Secondary data are data that are already collected and can be used for analysis based on the objectives of the research (Saunder et al., 2007). This includes qualitative and quantitative data and can be descriptive or exploratory. Secondary data can be obtained from document based data, survey based data and multiple sources.

Secondary data from document based data includes information from journals, articles, newspaper, magazines and general referrals. Secondary data from Survey based are data obtained through questionnaires, email research, smart cards. Multi source data are obtained from documentary and survey data (Saunders et al., 2007).

In order to achieve the objectives of this research, secondary data obtained from multiple sources, program like Dragon's Den – BBC and statistical data were used. Appendix 4 contains the profile of Dragon's Den investors and their golden rule for the entrepreneurs.

Data Analysis

There were 3 key objectives of this thesis. In literature review we discussed the theoretical view of the SME industry, UK Business angels and Entrepreneurs which satisfies the first objective of the thesis. Then it was followed by discussing about the investment aspects of a business angel when it comes to making an investment decisions which was the second objective. Furthermore according to the third objective we discussed the characteristics of UK business angels and Business angels in (Singapore, Denmark & New Zealand). Now the practical side of them will be analyzed with questionnaires & evident reports directed at angel investors and entrepreneurs. These evidences will then be analyzed and reviewed with the theory we discussed to find out how far they link each other.

Summary

The qualitative methodology was appropriate because the nature of exploring investor and entrepreneurial behaviors and organizational dynamics does not suit predictive statistical methods (Leedy & Ormrod, 2001). The exploratory design offered several advantages over quantitative methods because the sample was small, the purpose was to understand the why and how of behaviors, and interviews and direct observations provided flexibility of a deep exploration into behaviors and interactions (Leedy & Ormrod, 2001; Yin, 2003).

In the next chapter we will discuss about the evidence we have gathered of the academic concepts. And then follow it by evaluating them with the theories and academic understandings we have discussed.

Analysis

In Chapter 3 it was described that how the data and evidences were collected. In this chapter the evidences will be analyzed and reviewed with the theory to find out how far they link each other. This section starts with the overview of data on demographics then proceeds to the evaluation of Business angels and Entrepreneur interviews and Dragon's Den BBC-2 investors, find the growth of SME in UK and Business angel-entrepreneur relationship in a SME start-up business, Investment in different countries & culture compare to UK and development measurements.

Demographic Characteristics

The first few questions were designed to get information on the general characteristics of each participant like gender, age, educational level, professional expertise and angel investing experience.

Here, the diversity of professional expertise is illustrated. Among the participants financial services providers were represented in 25%, people from software and food related business and real estate were also represented in 25%. Expert from each profession were chosen in the interest of the questionnaires.

The experience level of the participants was also included in this research. This figure indicates that 50% had 5-10 years of angel investment experience, 25% had 11-15 years, and 25% had 16-19 years of angel investment experience.

Evaluation Of Business Angel & Entrepreneur Interviews:

3 Business angels and 1 entrepreneur were interviewed (one to one) for the requirements of the objectives. Appendix 3 contains profiles of the business angels and entrepreneur and also the full draft of one to one interviews.

Evaluation Of Business Angel Interviews (Q 1):

Question 1 was “How should a successful business angel be like?” The participants stated that a business angel should have good amounts of money and they need to have good knowledge of investment and experience. Business Angle 1 stated that “The business angle should be able to analyze the business instantly by looking at the proposal.” In business, trust is important thing. It is vital to build trust among the investor and entrepreneur. Business angel 1 clarified that “Having trust among each other to work on the business is very important.” While Business angel 3 said, “I'll not hesitate to reject the business proposal if I'm a bit unclear about entrepreneur.” It is not always about investing money as resource, there should be non-financial investments involved in the business. Business angel 1 who had personal involvements in his investments contributed all his experience and knowledge about the food industry to the investment. As Business angel 2 was once entrepreneur himself and knows how important to provide contributions to get the business go on. There is a need for an investor to find out exit plan options he can have after the investment. Business angel 3 suggested that there should he good exit plan when the time is right economically and he expects the entrepreneur to come up with an exit route in the business.

Evaluation Of Q 2:

Question 2 was “What do you expect from an entrepreneur?” Business angel 2&3 strongly believes the entrepreneur to be highly skilled. Most business angels request a business plan to find out financial information, market, growth potential, competitor analysis, possible threats and recommended solutions. Business angel 2 said, “I expect a heavily researched and detailed business plan from the entrepreneur.” Whereas Business angel 1 stated, “Entrepreneur Should be good at what he does and be pretty convincing about his service/product.”

Evaluation Of Q 3:

Question 3 was “How would you reach an entrepreneur?” (Osnabrugge and Robinson 2000, p-80) stating the importance of having Business angel networks to get to know each other. Business angel 3 saying that “An angel network finds him beneficial to find co-investors in certain investments he wasn't able to invest alone.” But Business angel 1 mostly use personal contacts, mostly entrepreneur comes to him through a friend or a business contact.

Evaluation Of Q 4:

Question 4 was “If you want to invest how your involvement will be?” (Business angel 1) who uses investments on his personal contacts wouldn't stop just from the initial stage. He would go on investing on all of the stages (expansion, restructuring & etc) if necessary which is a quite unusual characteristic for a UK angel. Although it is pretty common to know that investors in UK are willing to invest in family businesses, (Business angel 3) is not keen on investing on a family involved business which is a common characteristic among the Singaporean investors (Global Entrepreneurship Monitoring survey, 2002). These attitudes prove that all business angels should not be profiled in a similar way. This opinion is backed up by (Landstrom 1993, Osnabrugge and Robinson 2000) which stated that cultures and personalities could make them different to one another in terms of making a personal investment decision. (Business angel 2) explained that he is old and is not willing to travel too far for his investments and therefore expect the entrepreneur to operate around his residence area. He is aged 62 and as this is the fact that most investors aged over 50 expects from investee. (www.bbaa.org.uk) found this characteristic true as it stated that most British angels prefer their investee to operate within 100miles from where they live.

Evaluation Of Entrepreneur's Q 1:

First question was “What is it like to have a business angel investing in your business?” It is vital for the investee to gain trust and confidence on his product and business and that it is the only key to get the funding need to trust the business (Osnabrugge & Robinson 2000, p123). According to the (Entrepreneur 1), first impression was vital as the investor was not satisfied to hear his product was not innovative. But eventually he convinced the angel that his market demand is high and that he can perform well. This confidence and reliability is what investors expect from an entrepreneur in the beginning. (Entrepreneur 1) explained that it is much better to have a business angel in his business rather than having a bank loan. Business angels were able to support him through out his business transformation. (Mason and Stark, 2004), stated that it is advisable for an entrepreneur to seek angel support as the BAs contribute with all their resources including non-financial guidance which will fill all the management and operational gaps of the business.

Evaluation Of Entrepreneur's Q 2:

Second question was “What were you required to provide to get the investment go through?” (Sappa 2006) stating that, “Business angels wish to seek more information about the business owner to ensure his expertise in business management skills.” One of the main reasons for the Business angel to request (Entrepreneur 1) for a business plan was to find out about the business, about the ability of the investee and what the entrepreneur has offered to him.

Evaluation Of Dragon Den Investors:

Dragon's Den is a UK program directed at innovative entrepreneurs who are seeking wealthy UK investors (Dragons) to invest in their business idea and get it started. Many entrepreneurs with their ideas are confronted by these multimillion pound business owners who themselves have started their business from scratch. This program suits the concept of a business angel investing on a start-up business. Appendix 4 contains the profiles and their golden rules for the entrepreneurs of these UK investors.

James Caan mentioned that a successful entrepreneur should have people management skills and good presentation skills. This gives a good impression to the investor where he believes it to be very important skill for an entrepreneur to have. As we already discussed about what (Stedler and Peters, 2000) has stated about the capability of convincing the investor to invest on a promising business is very important. This kind of first impression can build a healthy business relationship with reliable trust through out the whole business process. James opinion of an investee being able to have management and communication skills was further explained by (Aernoudt 1999 & Sappa 2006) that it is one main aspect when it comes to assessing an entrepreneur. Theo Paphitis comment of having common sense in business is another vital skill an investee should have.

Peter Jones expressed that detailed research about all the aspects of the business is very important before an entrepreneur proceed to take action. This was further studied by (Osnabrugge and Robinson 2000) and explained the importance of having information about managing & planning a business.

Deborah Meaden showed how important it is to have a business plan worked out. It's not only benefits the business angel but it also reminds the entrepreneur where he is and what he should do to achieve his goals. (Mason & Harrison, 1996) explained that a business plan consists of financial information, market, growth potential, competitor analysis, possible threats and recommended solutions. This will in term help the business owner to react to challenges and take necessary actions for his goals as what Deborah wants from entrepreneurs.

The growth of the SME (Small and Medium Enterprise):

UK's growth of the SME increases each year as we discussed. The growth of the SME of the year 2006 and 2007 will be discussed as follows to find out how successful the SME in UK is.

2006 - In total the UK enterprises employed an approximately 22.4million employees and generated 2,600GBP billion worth of yearly revenue. SME consumed 58.9% of the total employment value and 51.6% of the total revenue value. (See figure 8)

Source: (Department for business enterprise & regulatory reform - SME Statistics for the UK 2006)

There were approximately 4.5 million business firms in UK at the beginning of the 2006 with 125,000 (2.9%) more than 2005 (BERR, 2007).

2007 - In total the UK enterprises employed an approximately 22.7million employees and generated 2,800GBP billion worth of yearly revenue. SME consumed 59.2% of the total employment value and 51.5% of the total revenue value (See figure 9)

Source: (Department for business enterprise & regulatory reform - SME Statistics for the UK 2007)

There were approximately 4.7 million business firms in UK at the beginning of the 2006 with 212,000 (4.8%) more than 2005. SME Employment was 13.5 million, 0.3 million (2%) more than 2006. SME revenue was 1440GBP billion, 83GBP billion (6.1%) more than 2006. This was stated as a record high statistic after 1994 (BERR, 2008).

Angel Investments In SME

In 2003 there were 156 SME businesses being funded by angel investors among 10 BA networks. It increased by 2004 where 203 businesses were funded and in 2005 there were 184 firms being invested by 17 BA networks. The amount invested in each year is shown in the (Figure 10) below:

Source: (www.bbaa.org.uk, BBAA statistics, 2005)

Investment in different countries and culture compare to UK:

Business angels have similar characteristics in most of the countries but it differs a little when economy, culture, policies comes to play. From our research we found that most of the Business angels in UK are aged between 40 to 64. But in Singapore angel investors are around the age of 35 or below and in New Zealand they are aged between 35 & 55. Singaporean angel investors are not really interested to invest in entrepreneurs who have or waiting to start-up their business with their families where UK investors are quite willing to invest on family businesses where trust is easily found. New Zealand investors have similar characteristics like UK investors as they prefer to invest mostly during the start-up and in the early expansion of the business. But Danish investors have moved into joining with other co-investors in partnerships to invest on new start-up businesses. All angel investors in UK, Singapore, Denmark, and New Zealand strongly focus on building a very strong relationship with the entrepreneur they deal.

Development Measurements

Currently the UK government, in order to uplift the economy of the country has introduced a new strategy. The strategy was introduced to encourage young business entrepreneurs to bring out their talents and get funding to start up their businesses. The strategy was developed with the knowledge and experience of many successful business owners and industry experts (BERR-UK, 2008).

Following are the main concepts that influence the strategy;

§ A culture of enterprise: to encourage any entrepreneur to step up to the industry.

§ Knowledge and skills: start educating from the primary schools.

§ Access to Finance: provide a clear knowledge and a pathway to reach funding.

§ Regulatory framework: minimizing regulatory barriers for the entrepreneurs.

§ Business innovation: Preparing the UK business to support the innovative ideas to develop and commercialize them.

Summary

This chapter presented the information collected from business angels and entrepreneur's interviews, Dragon's Den BBC 2 program and from other reports. The purpose was to find out business angel & entrepreneur relationship in a SME start-up businesses in UK. The SME statistics have shown the growth of the UK's SME industry and therefore proves it has a great potential for young entrepreneurs to rise. It is clear to understand that the UK governing body is highly interested in promoting young entrepreneurs to step up with innovative business ideas. This also means that there is a need of business angels taking part in this process by contributing their resources to get these new businesses up and running successfully. It proves to be beneficial for the investor, investee and the economy of the country.

Conclusion And Recommendation

In this chapter we will be discussing about how this report came about and find out how the objectives are achieved. The chapter will summarize the findings and provide suggestions for future Business angels and Entrepreneurs.

The purpose of this thesis is to widen the understanding of the business angel and the entrepreneur in terms of attracting each other. It also investigates the aspects of a business angels investing in the UK industry and business angels investing in different countries. The research findings brought us to a wider knowledge about the investment world.

Further in the research it tried to understand and analyze how a successful entrepreneur should influence an investor and at the same time how UK business angels help young entrepreneurs start their businesses. Important characteristics an entrepreneur should have were identified through the perspectives of business angels.

Later this chapter will conclude with managerial implications which will prove to be important in an entrepreneur's and a business angel's interest.

Conclusions Of Objectives

There were three objectives to be achieved through the research first being to understand a business angel, an entrepreneur and their relationship in a SME start-up business in UK.

Looking back at the results understanding a general perspective of a UK business angel was not a quite easy task. But with general understanding and assumptions based on factual answers by the interviewed angels it was able to relate most of their characteristics to the previous authors' results. UK business angels were mainly motivated to increase their financial capital. They also preferred investing in any industry in the SME sector as long as the entrepreneur shows benefits in the business. As in general business angels, UK angel investors relied mostly on the trustworthy relationship they could build with the investee. They prefer to have trust and minimize risk than investing on a profitable business with a hunch regardless who would manage the business.

Entrepreneurs were mostly supported by Network linked business angels and that is where most investors and investees in UK meet. One good characteristic about UK SME market is that the government's involvement to develop it. Several investment projects are carried out to increase the influence the country gives for young entrepreneurs to step up with innovations. The relationship between an investee and an investor is important to both sides as they rely on each other for their successes. A UK investor usually doesn't stop from just an initial investment. BAs mostly contribute the businesses with their non-financial experiences and other personal resources. This in one way helps an entrepreneur to succeed much faster and much better than an involvement of a bank loan. Contributing financial and non-financial capital shows that UK business angels enjoy their careers as BAs and interested in the country's economic developments.

Objective two was about identifying investment aspects of a business angel. This showed common features in all UK and International investors. Investment aspects have a formality where there can't be much of a difference in investment requirements. In the literature review we have identified priority levels in a business angel's investment criteria. Levels where investors give priority on what they expect out of an entrepreneur. This in many ways can be different among angel investors in different businesses. After analyzing other studies of investors and gathering information from the interviewees it clearly shows that (Enthusiasm of the investee, first impression, potential of the business & financial data) are important to UK angel investors as well as to international investors.

Objective three was about how international investors (Singapore, New Zealand & Denmark) are influenced to invest on their markets. In this study there were many aspects shown which are quite different as to the UK investors due to their cultural & economical behaviors. Singaporean investors are reluctant to invest on family businesses where UK investors are quite willing to invest on family businesses where trust is easily found.

Studying currently active businessmen and women who are investors was very important in this research. Apart from the anonymous investors who were interviewed, it was quite interesting to study how publicly recognized UK investors expect from an entrepreneur. The Dragon's Den program which is currently being aired in the media is very beneficial for entrepreneurs in UK in many ways. The program encourages all UK investees to come forward and promote their product or service innovations. The entrepreneurs who are confronted by these wealthy investors are required to pitch their business idea and influence the investors to invest in it. If successful the entrepreneurs will in return benefit from not only in financial terms but also non-financial (Business guidance, important decisions & etc) contributions. This showed us that investors are more like mentors for entrepreneurs who wish to start their businesses and succeed. There were entrepreneurial advices given by these successful individuals, which mainly aimed at influencing an investor and motivating the investee himself to get the business started.

Managerial Implications

In this section the final comments of authors who have studied business angels and entrepreneurs are discussed. It is still wise to note that the final conclusions of these authors do not mean that they are accurate for business angels or entrepreneurs. We learn new things in the dynamic business world everyday. Therefore there is still a need for formal studies about angel investment and implications to be carried out in the future as (Harrison & Manson, 1999) showed the three eras of investor researches.

For Business angels: It is shown that the importance of finding out background information about an entrepreneur is regarded as high. It is as important to find out the entrepreneur's capacity as it is important to know the financial benefits the investor would get from the investment. Looking at the study conducted by (Osnabrugge & Robinson 2000) shows one main focus which is to interpret how important it is for an angel investor to find out about the entrepreneur as it is the starting point of an investing.

Business angels should not stop from investing on a business. Constant monitoring of the performance and providing business guidance to the entrepreneur is very important. There could be many hurdles for the investee to jump and the business angel who is mostly experienced in this are of the business should ensure everything is in order for a perfect start. According to (Landstrom 1993) it is important for a business point of view for an angel investor to contribute non-financial guidance such as business advice, business training, provide necessary contacts to get a head start with suppliers & buyers.

Business angels who have a quick return and move out policy in their investments decisions, they should be interested on an entrepreneur's exit strategy. Exit strategy should show an angel the amount he could earn in a certain period. This can be negotiated between the investor and the investee in the first meeting. On the other hand if the investor wishes to stay invested in the business should aim for a long term benefiting plan for him/her and the business.

For entrepreneurs: The most important thing for an entrepreneur is to conduct detailed research on the business he wishes to start. As Deborah Meaden (Dragon's Den program) advised, an entrepreneur should first research on the business and then get enthusiastic about it. The investee should be well prepared for the first meeting with the investor as it will decide the fortune of the business. First impression matters and therefore early preparation, presentation skills, good communications, knowledge of all the facts about the business & confidence is compulsory when influencing an investor. Good management skills and leadership will define the success of a business performance. An entrepreneur should develop those skills and be fully committed to the business. It is also very important to maintain a healthy business relationship with the business angel as the investor has a big capability to transform a small business into a wealthy organization. If necessary the entrepreneur should be willing to change the business attitude to make better decisions with the angel's guidance. A successful entrepreneur improves from past mistakes and will have the determination to learn from business experiences.

Reflective Statement

Purpose And Focus

The following specific discussion about this thesis is as important to the researcher as it can be important for a business angel and an entrepreneur. The researcher was so excited about this topic because he himself wanted to become an entrepreneur in the near future. He was enthusiastic about learning what it takes to become a successful entrepreneur and to influence a business angel invest in his business. He knew by studying the investment business it will educate many aspects of starting his own business and it has done just that.

Even as a teenager he always wanted to start his own business and be a successful entrepreneur. Researcher's father is an active businessman running his business for more than 10 years. What they say about “Like father like son” is quite true as he wishes to experience the satisfaction and the challenges his father faces everyday. It also encouraged him to study MBA and create a clear path to become an entrepreneur. That specific path he wishes to create influenced him to research about business angels and entrepreneurs. Through out his career he had worked back home, he met many successful individuals who have risen up from absolutely nothing to become wealthy businessmen. Before he ended his semester 1 in the MBA he knew what he had to research about when it comes his dissertation and it has benefited him now. The researcher is extremely happy to say that the satisfaction this thesis has given him, will take him a long way in his career.

Although many theories were discussed in the literature review it showed that the “Resource based view theory” is by far the most applicable concept to define the relationship of a business angel & entrepreneur. The Resource Based View theory defined both aspects of an investment (Financial investments & non-financial contributions).

Researcher believes the best practical results this thesis has learnt about business angels and entrepreneurs were from (Business angel 2) and Peter Jones (Dragon's Den). At the conclusion of the literature review, it showed that many features of each of the relevant theories should be mixed and amended to get one general concept of a good investor-investee relationship. Their (Business angel 2, Peter Jones) comments and advices in the evidence chapter provided almost all the aspects (entrepreneur requirements, financial aspects & non-financial aspects) between a successful investment and an entrepreneurship. Their experience and their strategies can have more successful results than any other individual and their achievements profiled in previous chapters illustrated it.

The Reflection

Conducting this research taught many lessons in terms of achieving what is needed. The thesis led the researcher to work beyond the capacity he thought he could achieve and it is encouraging. After studying many individuals and their success led him to believe that he could one day achieve the same if he works hard enough. The way he thinks about business and life has changed immensely in a good way as he makes right decisions and he was highly motivated in completing this thesis. It is rather similar to the enthusiasm an entrepreneur should have to promote his/her business. The experience and the knowledge the researcher gained through this research thought him that if he is passionate about a certain goal he should not quite till he succeeds in achieving it.

There were real business investors explaining important attitudes, attributes & skills an entrepreneur should have. These characteristics are important to any individual in terms of success. Being motivated & committed towards certain goals, willingness to learn from past mistakes, being positive about what someone believes in are some important attributes learnt from this research. To be a successful leader there were important skills suggested by business angels; good communication, good presentation, confidence & people skills are some of them.

In pursue of a goal there are hard battles to survive and conducting this research was one achievement he had to fight hard for. Life is never easy for a student to live by himself, especially when he was required to fund his own living expenses at the same pace as he does the research. Managing and carrying out a dissertation requires a lot of planning. It becomes much difficult to estimate the capacity of the work at the beginning whilst engaging him in employment. He had to learn to create a difficult time schedule which had to balance his studies with his employment which he couldn't avoid. Working up to the schedule was another difficult fact as there are always unexpected interferences. Most obviously the time period post graduate students were given to complete the thesis was not planned and therefore the difficulty was sometimes unbearable. The good outcome of it is that there was always commitment and his will to get him through to the end.

The thesis was developed with many sacrifices and the result the researcher has developed satisfies him as he always knew that he was doing his best. It was always a hard task to reach business angels to conduct an interview as most investors work anonymously in the investment business. The evidence he has gathered have covered all the objectives that needed to be discussed and analyzed. All the participants who gave their interviews were very informal about their contributions and shared all their business experiences and thoughts to provide the necessary information to complete evidence.

While he was conducting his interviews he was impressed about the casual conversations he had with these investors and it gave him a motivation to get where they are. He felt that the way he conducted his interviews was very successful. They only agreed to participate for 10 minutes at the beginning but ended up discussing with me for more than an hour. The way he conducted the interviews and his career goals impressed them to go beyond their limits to share their success factors.

The thesis it self brought out many qualities the researcher him self wasn't aware of having. The confidence to complete the research according to the time schedule set up by his supervisor was very satisfying as he didn't want to let his supervisor and him self down without giving his very best effort. He had constant contacts and meetings with his supervisor to inform him the progress of the thesis and he always believed that the researcher was focused towards his topic. His supervisor was always open-minded and showed possible areas where the researcher could improve. On the other hand his friends whom he shares a house and live with were constantly monitoring him to ensure he is on the right track to complete the thesis. What the friends always saw in him was the commitment and the enthusiasm about the topic he researched on. Each night discuss about the progress and how interesting each finding was. It motivated them to follow his progress and help him in many domestic ways such as provide him a quite environment during the last few weeks and prepare him meals every night as he comes home tired from the library. If he wasn't committed towards his work there wouldn't have been a support from his friends whom he appreciates a lot for what they have done for him.

Outcomes

The experience the researcher gained through the evidence was gathered from business angels and entrepreneurs gave an insight to how different their thinking perspectives are. It inspired him to think differently about many aspects of life and his career. The evidence he has gathered gives the confidence to discuss relevant literature introduced.

According to (Harrison & Manson, 1999), it is stated that the next generation of investor-investee studies should be much improved compared to the faults we identified in previous theories studied. The theories studies in previous researches focused mainly on the relationship of the business angel and the investor. Therefore future studies should focus more towards business angels financial and non-financial contributions. There should be also theories that can define the requirements of a business angel which can measure the cash out route, rate of return and the commitment of the entrepreneur. We learnt that changing environment and economic inflations and deflations changes a way an investor make a decision. Therefore the theories developed in the future should be able to be adapted to the changing business environment.

There were many career interests the researcher has identified within him self while finding the evidence and analyzing them. Researching on a specific idea he wishes to develop on and taking action about it was something that he should remember during his career. He learnt that he should be passionate about what he does and should not let anything distract it. Looking back at what successful investors like Peter Jones he must be ready to learn from my mistakes and make better planned decisions about every aspect of his life.

As the strengths of this reflective statement it specifies the important conclusions a business angel and an investor should review. At the same time it reminded the researcher how to successfully become an entrepreneur and influence a business angel.

Finally, this research has given the researcher a focused learning experience. Reviewing other research studies carried out by many authors showed how important it is to plan, design and manage well focused research. At the end all these researches educate businessmen and women about the possibility to improve their products and services to satisfy the customers in a dynamic environment. The researcher believes that “Willing to learn is an indication of maturity”.

Appendix 1: Information sources for starting up in business

(Source: British Library – Information sources for starting up in business, Jeremy O' Hare, 2007)

Start – up advice and information:

Websites:

Princes Trust http://www.princes-trust.org.uk/ - Offer low interest loans & ongoing

support with free mentoring.

Startups.co.uk http://www.startups.co.uk/ - Provides helpful information and a

forum that links many entrepreneurs

Start-ups http://www.startups.co.uk – Provides business start up guides, events

information, business planning advice, finding finance sources & working from home advice

The Business Volunteer Mentors (BVM)

http://www.bvm.org.uk/ - Provides free mentoring from volunteers.

National Federation of Enterprise Agencies

http://www.nfea.com – Provides range of services for pre-start, start – up &

post-start businesses.

Small Business http://www.smallbusiness.co.uk/

Small Business Advice Service http://www.smallbusinessadvice.org.uk/ - Services

include Start a Business, Business Technology, Small Business Finance,

Franchise Information, Sales & Marketing, Franchise Directory, Legal

Services.

Books:

The Beermat Entrepreneur: Turn Your Good Idea Into A Great Business. (Mike Southon and Chris West, Prentice Hall, 2005) [Small Business Help Section]

The Complete Idiot's Guide to Starting Your Own Business. (Edward Paulson with Marcia Layton, Alpha Books, 2003) [Small Business Help Section]

Lessons From the Edge: Survival Skills for Starting and Growing a Company (Jana Matthews, Jeff Dennis, with Peter Economy, Oxford University Press, 2003) [YK.2004.a.4040]

Start and Run Your Own Business (Alan Le Marinel, Oxford How to Books, 2005) [Small Business Help Section]

Start Small, Finish Big: Fifteen Key Lessons to Start and Run Your Own Successful Business (Fred DeLuca with John P. Hayes, Warner Books, 2000) [YK.2003.a.2706]

Starting a Business in Britain. (Brian O'Kane, Virgin, 2003) [YC.2003.a.20541]

Starting Your Own Business (Jim Green, Oxford How to Books, 2005) [Small Business Help Section]

How To Write A Business Plan:

(Websites)

Planware http://www.planware.org/busplan.htm

Business Link http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073869162

Finance funding:

(Books)

Angel Investing: Matching Start-up Funds with Start Up Companies. The Guide for Entrepreneurs, Individual Investors, and Venture Capitalists. (Mark Van Osnabrugge and Robert J. Robinson, Jossey-Bass, 2000) [m00/33279]

Attracting Capital from Angels (Brian Hill, Wiley, 2002) [Small Business Help Section]

Attracting Investors (Philip Kotler, Wiley, 2004) [Small Business Help Section]

Business Angel Finance (National Business Angels Network and the British Venture Capital Association, 2002/2003) [(B) AA 658 BUS]

The Grants Register (Palgrave Macmillan, 2006) [Directories 378.33 Business]

Appendix 2: Framework for a business plan

(Source: Lennox Tech Enterprise Center High Tech Rochester)

1) Executive summary—roughly 10% of the length of your plan, or two pages, whichever is shorter!

2) Business description

a) Who are you?

b) What are you?

c) What do you do?

d) Why do you do it?

3) Industry analysis

a) Who are the players?

i) How large?

ii) What are the hot areas?

4) Market analysis

a) How large is your market:

i) Aggregate customers

ii) Aggregate dollar/ sales volume

iii) Drill down to your target customer

5) Marketing plan

a) Who: the target customer

b) Where is the focus?

c) Four Ps:

6) Competitive analysis

a) Direct competition

i) Size

ii) Scope

iii) Product/ service offering

b) Indirect competition

c) Future competition

d) SWOT analysis:

e) Business or economic conditions, good or bad; political?

7) Organization

a) Who's involved?

b) Competencies/ experience

8) Operations/ logistics

a) How do you deliver your product or service?

b) After-the-sale issues

9) Exit strategies—investors and owners

a) Acquisition, IPO, or other liquidity event?

10) Funding needs

a) How much?

b) What for?

11) Financial plan

a) Highlights

b) Sensitivity analysis

Appendix 3: Interviews With Business Angels

Entrepreneur

Interviewees (Business Angels)

The business angels who were willing to participate in the one-to-one interviews had one common request and that is their business profiles to remain anonymous. When asked why, they stated that they wanted their involvement private; otherwise it would affect their business once people find out their investment requirements and thinking patterns.

3 business angels with more than 5 years of investment experience. Their anonymous profiles are as follows;

Business angel 1 (UK): Male aged 52, who has been a family restaurant owner for almost 17 years, has a good knowledge in the food industry. Wishes to invest on the food industry mainly on a small restaurant he finds good potential.

He has 2 investments through personal contacts, one investment being a colleague's restaurant. He has been a business angel for 8 years and continues investing on his colleague's restaurant. He invested only in the start-up phase in the second investment.

Although he received many business plans relating other industries during his career, he has turned them down. Prefers the food industry he expertise on and prefers personal contacts to invest.

Business angel 2 (UK): Male aged 62, was a CEO of a company in the finance industry for more than 5 years. He has been a business angel for more than 14 years, some years while working as a CEO. Now he gives management advices to new businesses to stand up on their own feet. Most of the time he prefers providing non-financial resources to new businesses than investing funds.

Prefers network contacts to reach good entrepreneurs and helps them with all the resources he has. He enjoys seeing his investee companies performing well. Although he makes good exit strategies he will hang on to the entrepreneur until he assures that the owner can do fine without his input. But if it's strongly needed he is always prepared to invest in later stages of the business. He used to invest a lot during his early career as a BA but now he is very careful in selection. He depends a lot on the principal- agent relationship.

Business angel 3 (SINGAPORE): Female aged 34, who currently work in a buying office as a senior merchandiser. She intends to invest on almost all industries that she sees potential growth and immediate success. She has been investing as a business angel for more 6 ½ years with 7 investments installed. Currently holds on to one investment in a small retail intimates shop and has exited out from all the other 6 investments with 3 being very successful with good returns of investment. Prefers business angel networks to find contacts and keen on a good exit strategy. Previously she has invested 80% of her funds in a company with a rate of return of 2-4 times of the fund in 3-5 years. She usually looks at the power of ownership when she invests more than 51% of the total initial capital of the company. After 48 months has passed and if she finds out that the company is not returning the expected income she wishes to sell the company or else give the business owner the option to buy it from her at the price of the market.

Questionnaires

Q1: How Should A Successful Business Angel Be Like?

Business angel 1 (UK): “A business angel can be a certain individual with a good amount of notes in the bank. He should be able to invest the amount he thinks sufficient and not the amount the entrepreneur expects from him. The Business angel (BA) should be able to analyze the business instantly by looking at the proposal. The BA should also be willing to commit himself to the company and be cautious when risky decisions are to be made. “Investing is a risky business. It's like you live in a foreign territory with people you don't know that much. One day things can go wrong and you can get shot out of the blue”. Most BAs' would not mind investing on a business proposal they receive every now and then. Once he gives a look at a promising idea and get to know the entrepreneur, he would go with it. But I strongly recommend that BAs should be linked with the entrepreneur in a business or personal way and have some kind of idea about the owner and the business he proposes. “Trust is important”.”

Business angel 2 (UK): “A business angel should not be a young person with lots of money after his family and have time to spend them on investments. A business angel needs to be a matured person with a good knowledge of investments and experience. “An immature person with money could walk 2 feet above and do unsuccessful investments, if he does not know what he's doing”. A BA should have the talent to read an entrepreneur well enough to realize the potential of the idea. He further states that, it's not always investing money in this business. Sometimes to make sure your investment is successful you need to constantly monitor the progress of the start-up management. The BA will have to have enough non-financial resources like good management skills, market experience and people skills to support the entrepreneur.

He believes that most BAs' invest money and expect the entrepreneur to do the rest of the work and give back the return he expects. “In the real world it doesn't happen at all, you need to make sure you get the work done with a healthy relationship between him and the business owner”. A start-up investment should not end after the investment. There should be non-financial commitment involved between the investor & the investee.”

Business angel 3 (SINGAPORE): “A business angel should be an individual with a sharp eye on the market opportunities. A BA does not need to be wealthy at all times. Sometimes if you see a good idea and if you see a huge potential in it, you should not let it go. The BA should be able to find co-investment partnerships and get involved in the process than letting it slip away. He further states that a BA should not be emotionally involved with the business, “when you see a good way out with good money, you should take it and not worry about what would happen in the future”. Many angels in Singapore prefer to not to get involved with family businesses. When asked why, he stated that “family businesses don't make decisions with their heads, they make decisions with their hearts and that is not good for a business these days”. He believes that if you are a pretty solid investor, you should help good businesses start well at the same time have a good exit plan when the time is right. A business angel should be aware of the economy changes and amend their exit strategies and the investment decisions accordingly.”

Q2: What Do You Expect From An Entrepreneur?

Business angel 1 (UK): “I strongly believe that an entrepreneur should be a person who has the will to finish what he started. He should be able to listen to what I would suggest and work with me together. I need to be able to trust him and he needs to trust me. That is why I strongly prefer having a business relationship with a person I know or have an idea about. If I do not know the entrepreneur and if lot of time is needed to know who he really is and what he needs it could be dangerous for my money. By the time I get to know the entrepreneur it could be late to make crucial decisions about the business. An entrepreneur should be good at what he does and be pretty convincing about his service/product.”

Business angel 2 (UK): “The important thing about an entrepreneur is that he/she should be honest to the ground. If I'm unaware of the entrepreneur and do not see confidence in him and the product he tries to push in to the market, I would not hesitate to reject the proposal. I would use a lot of my resources to find out about the entrepreneur and his product. He should convince me about his idea and make me want to know his plan. He should have a good promising business plan that gives all the information about the product/service, market, competition and his resources. I should know that I can rely on him.”

Business angel 3 (SINGAPORE): “I expect the entrepreneur to be highly skilled with a good business mind. He should not have debts involved at the start-up and should be confident to give me a plan to return the investment at the rate I need. I usually do not invest alone as I share my risks with other co-investors and it should not bother him. If I'm a bit unsure about his procedures I will not bother to take the risk of investing on him. In some investments I did, I expect him to give me results without me being involved at all. I don't want to follow him through all the steps in the initial stage as I'm actively working in my company. All angel investors in our country do not wish to invest in family businesses. When asked why; he stated, “We don't believe family businesses should be controlled by outsiders. If they have financial issues then they should go to a bank. It's a cultural understanding they have with family honor in place.

Q3: How Would You Reach An Entrepreneur?

Business angel 1 (UK): “I mostly use personal contacts. I have been working in the food industry for a long time; therefore I can easily find investees who need financial help in starting a restaurant or something similar. Mostly the entrepreneur comes to me through a friend or a business contact.”

Business angel 2 (UK): “I enjoy being with fellow business angels. I have been in the investment business for a long time and they look up for me. If they find a tough client they pass it on to me and if I find it beneficial I will take it from there. Most of the time my business finds me the contacts, as I do consulting for small to medium firms. I have a large clientele and it gives me enough business plans to check on every month. Sometimes if I see something interesting in the news or in a magazine about a new innovation opportunity, I will pay extra attention to find if there are any start-up entrepreneurs wish to seek funding in that specific sector. I want to be involved with the latest technology and business, so if something pops up that attracts my attention; I shall look for a client myself.”

Business angel 3 (SINGAPORE): “I'm involved in a Business angel network and it gives me plenty of propositions to go through. I'm a very busy man and therefore I don't have time to look for entrepreneurs and the BA network does the trick.”

Q4: If You Are Willing To Invest How Will Your Involvement Be?

Business angel 1 (UK): “I would put considerable time and effort into the business. I would provide all my management advice and training if necessary. As I'm a person who involves personal contacts, I would hold on to the business until it gives confidence to the entrepreneur. It means if I have to, I will invest in other phases of the business and not limit my self to the start-up. I will not be too keen on the exit strategy as many other business angels in UK. But I shall closely monitor the performance and even provide non-financial guidance like take important managing decisions for the owner.”

Business angel 2 (UK): “I have worked in lot of companies as a business angel and the only best way I know for success is to give all I have in my closet. It means provide necessary funding and non financial guidance. This includes contacting relevant suppliers, customers and other financial controllers who can give that perfect start for the company. In return I expect good money back to me with a timeframe I set best for the owner to achieve. I my self know what it likes to be an entrepreneur and therefore I will do whatever it takes to succeed. When there is a change in the economy I will make sure the business reacts to it. If the owner is not prepared, I will make him. I do prefer to keep in touch with the entrepreneur very often but I'm old now and I need him to be working where I live. So I'm selective in many ways when it comes to investing on a firm.”

Business angel 3 (Singapore): “Compared to many angel investors I pay less time on the business I invest but I do expect progress reports from the entrepreneur. If I see any flaws in the strategy I will reach him and work on it. When I invest I make sure I have a way out after a certain period and therefore I would only worry about what I get during that period which makes me a selfish man unfortunately. I invest more than 60% of the capital and have a larger ownership leaving the entrepreneur to continue from there. If I decide to go for a co-investment strategy then I will make sure that the investment partnership is safe and we all go out rich. I monitor the change of economy because it plays a major role for my returns.”

Entrepreneurs

One of the business angels I interviewed (Business angel 2) was kind enough to provide an entrepreneur he invested few years ago and he was interviewed to look at the entrepreneur's point of view in investments.

Profile: Male, 47. He is a successful owner of a software company where he promotes software, laptops, accessories & etc. This interview was carried out over the phone.

Q1: What Is It Like To Have A Business Angel Investing In Your Business?

Entrepreneur 1 (UK): “In the beginning I was going to request a bank loan to fund my business and one of my friends suggested that it is much wiser to have a business angel funding. I was first asked to prepare a business plan and budget my finance requirements along with the product/services I wished to promote. At the first meeting he (Business angel) wanted to look for something new (innovative idea), but I didn't have any. This was discouraging my BA and I assured him that the area I work which is a bit closer to his residence has fewer providers of computer accessories. I convinced him that I can create a good demand and showed him my long term plan which took him by a surprise.”

“He gave me all the necessary benefits and the consequences I would face if I go through with his investment. He was direct about his requirements which weren't all that bad for me. We both found confidence in each other and we went ahead with the investment. Until now even after having 2 years of successful business, I still reach him for a chat about my business. We share our thoughts and we share our ideas which don't bring him any good but me. But I see that it gives him a bit of a joy to know that his investment did great not only to him but for the business and the community.”

“If I had gone to a bank or a venture capital firm I would look like a small entity and end up getting the fund and that's it. But a business angel can give us more than that like I explained earlier. Therefore having a business angel in your start-up is as good as it can get”.

Q2: What Were You Required To Provide To Get The Investment Go Through?

Entrepreneur 1 (UK): “I was required to prepare a well complete business plan that provides information about my business concept, sales prospective of the product, opportunity of development in the market, details of the product/service, my previous work, benefits he could get, rate of return I believe to achieve, the amount of the funding I need and reasons for it.”

Appendix 4: Dragons Den Bbc 2 Investors

Dragon's Den is a UK program directed at innovative entrepreneurs who are seeking wealthy UK investors (Dragons) to invest in their business idea and get it started. Many entrepreneurs with their ideas are confronted by these multimillion pound business owners who themselves have started their business from scratch. This program suits the concept of a business angel investing on a start-up business. Following are the profiles of these UK investors;

Peter Jones: has a multimillion business portfolio that ranges from telecom, leisure,

property and media.

James Caan: Succeeded in forming a global business in the recruitment industry and

now Owns an international private equity firm.

Deborah Meaden: Specializes on holiday and leisure industry in the West Country.

Theo Paphitis: Transforms the fortunes of retail brands like Raymond, Lacenzer & etc.

Duncan Bannatyne: Owns Hotels, casinos and restaurants.

Their Golden rules for the entrepreneurs;

Peter Jones: Should have a clear vision (E.g. Peter set up Generation Telecom with a vision to sell it to a major telecom in 3-5 years time. And in exactly 3 years he sold it to Vodafone successfully earning millions).

Passion - one should have a passion about what an entrepreneur would do (E.g. When he was a boy he started a tennis academy he always loved, and when he was 19 he bought a house and a car on his own).

Take action - a person should take action about what he wants to do. If you have something in mind and have no money it should not be a major concern. You should make it happen by taking immediate action about it (E.g. He wanted to start a business once and didn't have money but he took action and planned out his execution well. He ended up being a milliner again).

Feasibility and research – There should be a proper thorough feasibility about the business one is going to establish. Should do detail research about the market, suppliers, how to market the product.

James Caan: An entrepreneur should have a good attitude towards people and the business. Presentation and preparation is very important as I believe in good impressions. He should be aware of the statement “Practice makes perfect”. The more you prepare for your business the more you will be ready to start and succeed. A good entrepreneur should be positive enough to accept failures. The more failures you face the more you learn from them and improve your business. You should be able to take risk, make sacrifices and never give up on things that keep failing. Leadership is something I believe in an entrepreneur's success. You need to have proper leadership skills and communication skill as you have to manage people. Furthermore there should be a clear vision & a strategy for the business. If there is no strategy for the business, there will be no future.

Deborah Meaden: A business plan (BP) is something an entrepreneur should put a lot of effort on. The BP is not for any other person, but for the entrepreneur himself as it can guide and remind him where he is, where he should be and how to get there. The best way to succeed failures is if the entrepreneur stays cool and be able to work under pressure. Honesty and being clear about what should be achieved is what we as investors expect from an entrepreneur. Many business angels advice, that you should be passionate about an idea and then take action towards it with a proper plan. I would say that you first need to want to convince that the idea has a potential by researching about it, and then you can get passionate about it. I believe in detailed market research is important before you convince yourself with the business idea. As an investor I need my investee to be specific about all the details about the business, market & the financial figures which is really important in the start-up stage.

Theo Paphitis: Cash is a mane component of an entrepreneur. If there is no cash, there is no success, it's like “Lack of profit is like a cancer, it will kill you slowly till you loose the business” and “Lack of cash is like a heart attack, it will make you go bankrupt overnight”. Next tip is common sense. If there is no common sense in business decisions there won't be good decisions made because 90% of a business is common sense. A successful entrepreneur should be doing a lot of home work (research) about his product or service and etc. There should also be alternative measurements for failures as anything could happen at any given time and the entrepreneur should be ready to face them.

Duncan Bannatyne: Business is always about managing people and believing in the product you find it promising. An entrepreneur should make sure that the product offered can sell and do whatever that it should do. Organizational structure is very important no matter how small or large the company could be. There should be proper organized methods for transactions and authorizations inside the business firm if to perform well.

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