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Abstract
Business angel networks act as a financial intermediary between investors and start-ups and are a means of overcoming the problem of matching entrepreneurs and business angels. In reality, most business angel networks do not accomplish this goal. Using the results of an empirical survey and five exploratory case studies, we develop three propositions concerning the business model of angel networks. We find theoretical and empirical evidence that angel networks actually foster adverse selection during the investment process. Consequently, angels, especially serial business angels, do not receive sustainable benefits from network services and actually face new risks during the investment process.
Notes
1. The abbreviation NBA was the official abbreviation of the network from 1999. In 2004, the network was rebranded under the name ‘netzwerk-nordbayern’ (www.n-b-a.de).
2. We performed this classification during personal interviews that every angel had with the network manager.
3. These findings were not contradicted by a check-survey on the dataset companies in summer 2007. Three successful exits via IPO were made; all three companies belonged to the group without BAN involvement. Six further companies went out of business or were facing severe financial problems due to lack of business success, three of them with BAN involvement, three of them without.