Business Angels and Value Added: Does it Affect New Venture Performance?

University essay from Lunds universitet/Företagsekonomiska institutionen

Abstract: PURPOSE. Business angels are often the first external source from which entrepreneurial ventures can secure financing. In addition to providing financial capital, business angels are known for their extensive value adding involvement in the portfolio ventures. This research seeks to map the effects of value added by business angels to the performance of new ventures in Sweden. METHODOLOGY. Using a dataset of 41 Swedish ventures backed by business angels, this master thesis employs a linear regression analysis to evaluate the effects of four value adding roles; the sounding board and strategic role, resource acquisition role, supervision and monitoring role, and mentoring role; to the entrepreneur’s perceived performance of their firm. FINDINGS. The study’s findings conclude there is a significant relationship between value added and new venture performance. The data provides supporting evidence of a positive effect of the sounding board and strategic role, as well as resource acquisition role, on performance. In contrast, supervision and monitoring was found to have a negative effect on venture performance and mentoring had no significant effect in either direction. IMPLICATIONS. The results suggest that entrepreneurs and business angels could benefit from better communication of value added expectations. The data further implies that certain value adding roles have a stronger effect on performance than do others. CONTRIBUTION. Prior empirical studies have not mapped theoretical value added by business angels to perceived performance of the ventures. This paper thus adds insights into the complex value adding relationship between entrepreneurs and their business angels.

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