Business angels and early stage decision making criteria: empirical evidence from an emerging market

Figures & data

Table 1. Survey results – the sample characteristics.

Age category/experience (Position)	Executive		Manager		Ex-entrepreneur		Investor		In total
	n	% of n	n	% of n	n	% of n	n	% of n	n	% of n
< 30	1	3.23	1	3.23	0	0.00	0	0.00	2	6.45
30–40	1	3.23	1	3.23	0	0	1	3.23	3	9.68
40–50	5	16.13	0	0	1	3.23	1	3.23	7	22.58
50–60	7	22.58	4	12.90	1	3.23	0	0.00	12	38.71
> 60	4	12.90	0	0	1	3.23	2	6.45	7	22.58
In total	18	58.06	6	19.35	3	9.68	4	12.90	31	100.0
Age Category/Experience (Industry)	IT and telecommu-nications		R&D		Production		Services		In Total
	n	% of n	n	% of n	n	% of n	n	% of n	n	% of n
< 30	1	3.23	1	3.23	0	0.00	0	0.00	2	6.45
30–40	2	6.45	0	0.00	1	3.23	0	0.00	3	9.68
40–50	5	16.13	1	3.23	0	0.00	1	3.23	7	22.58
50–60	4	12.90	4	12.90	3	9.68	1	3.23	12	38.71
> 60	5	16.13	1	3.23	1	3.23	0	0.00	7	22.58
In total	17	54.84	7	22.58	5	16.13	2	6.45	31	100.0

Source: Own research.

Table 2. Survey results – Why do BAs reject funding within early stage assessment?

Project rejection criteria (‘fatal flaws’)	n	% of n
The investor does not trust the entrepreneur (lack of any prior experience)	26	83.87
Insufficient financial participation of the entrepreneur	24	77.42
The project is perceived as ill-conceived	18	58.06
The investor does not understand the project / industry	16	51.61
The project is facing existential problems	10	32.26

Note: Multiple-choice possible.

Source: Own research.

Table 3. Correlation matrix – correlations between the reasons for proposal rejection.

Factors	A	B	C	D	E
A – The investor does not trust the entrepreneur (lack of any prior experience)	1.00	0.10	0.52*	0.30	0.60*
B – The investor does not understand the project / industry		1.00	0.09	−0.02	−0.21
C – The project is perceived as ill-conceived			1.00	0.17	0.32
D – The project is facing existential problems				1.00	0.37*
E – Insufficient financial participation of the entrepreneur					1.00

Note: Obs. = 31, critical value = 0.36, * indicates a statistically significant correlation at the 5% level (2-tailed).

Source: Own calculations.

Table 4. Survey results – categorization of early stage screening criteria.

Category	Early stage screening criteria
Market potential	Is there a clearly identifiable target market for the product?**
	Market size (Can a large international market be established or does it already exist?)**
	Market growth (a fast growing market)**
	No significant competition*
Investors’ preferences	Industry*
	Project (life) stage*
	No fundamental problems hindering the project implementation*
Entrepreneur and quality of management team	Formal education*
	Start-up experience*
	Experience in the industry*
	Management experience*
	Complexity of the management team*
	Project progress to date*
	Perceptions and attitudes of the entrepreneur*
Product	Value added (a consumer perspective)**
	Uniqueness (compared to the competition)**
	Protectability (potential patent protection)*
	Growth potential of the project/market**
Financial criteria	Clear payback period**
	Clear return on investment**
	Exit perspective (time horizon of the investment/payback period)*
	Co-financing (equity stake of the entrepreneur)**
Investor control and monitoring	Proactive rather than reactive management attitude (It is expected that BAs will take senior management positions in the investee firm and/or become involved as consultants)**

Note: The symbol** means that the criteria are critical (fatal), i.e. minimal requirements in terms of their characteristics are defined to determine whether a project could be moved beyond the early stage assessment. The symbol* means that the criteria are NOT critical, i.e. no minimal requirements in terms of their characteristics are defined.

Source: Own research.

Table 5. Survey results – market characteristics.

Factors	A	B	C	D
A – Market size (an international market exists or can be established)	1.00	0.41*	−0.33	−0.22
B – Market growth (a fast growing market)		1.00	−0.36*	−0.35
C – Target market can be clearly identified			1.00	0.45*
D – No significant competition				1.00
	A	B	C	D
Frequency n (% of n)	11 (35.48)	20 (64.52)	18 (58.06)	10 (32.26)

Note: Obs. = 31, critical value = 0.36, * indicates a statistically significant correlation at the 5% level (2-tailed).

Source: Own calculations.

Table 6. Probabilities of not being immediately rejected if specific conditions in terms of the market characteristics are met (in per cent).

	No additional requirements	An inter-national market	A fast growing market	A clearly identifiable market	No significant competition
No additional requirements		3	16	13	3
An international market + a fast growing market	39			68	42
An international market + a clearly identifiable market	16		68		35
An international market + a competitive advantage	6		42	35
A fast growing market + a clearly identifiable market	39	68			65
A fast growing market + a competitive advantage	19	42		65
A clearly identifiable market + a competitive advantage	32	35	65
All requirements are met	100

Source: Own calculations.

Table 7. Survey results – investors’ preferences in terms of the industry.

Factors	A	B	C	D	E
A – IT	1.00	0.22	−0.29	−0.42*	0.08
B – Telecommunications		1.00	−0.05	−0.19	0.13
C – Services			1.00	0.31	0.06
D – Investors who do not exclude another industries				1.00	0.42*
E – It comes to people and other factors					1.00
	A	B	C	D	E
Frequency n (% of n)	19 (61.29)	9 (29.03)	8 (25.81)	15 (48.39)	14 (45.16)

Note: Obs. = 31, critical value = 0.36, * indicates a statistically significant correlation at the 5% level (2-tailed).

Source: Own calculations.

Table 8. Survey results – investors’ preferences in terms of the project life stage.

Factors	A	B	C	D	E
A – Seed	1.00	−0.22	−0.21	−0.25	0.40*
B – Start up		1.00	−0.32	−0.16	0.01
C – Emerging stage			1.00	0.18	−0.29
D – Expansion				1.00	−0.24
E – Not in an existence crisis					1.00
	A	B	C	D	E
Frequency n (% of n)	15 (48.39)	18 (58.06)	7 (22.58)	5 (16.13)	7 (22.58)

Note: Obs. = 31, critical value = 0.36, * indicates a statistically significant correlation at the 5% level (2-tailed).

Source: Own calculations.

Table 9. Probability that a project can be moved beyond the early stage assessment depending on the project life stage (in per cent).

Project life stage	Seed and start-up	Emerging stage	Expansion
General acceptability of projects	48	84	77
Acceptability of projects in an existence crisis	19	23	13
Share of crisis financing on funds invested	40	27	17

Source: Own calculations.

Table 10. Survey results – entrepreneur and the management quality.

Factors	A	B	C	D	E	F	G
A – Formal education	1.00	−0.16	−0.10	−0.21	−0.45*	0.45*	−0.21
B – Start-up experience		1.00	0.18	0.23	0.21	−0.21	0.19
C – Management experience			1.00	0.38*	0.07	−0.25	−0.09
D – Experience in the industry				1.00	0.09	−0.09	−0.12
E – Project progress to date					1.00	−0.52*	0.59*
F – Perceptions and attitudes of the entrepreneur						1.00	−0.22
G – Complexity of the management team							1.00
	A	B	C	D	E	F	G
Frequency n (% of n)	3 (9.68)	6 (19.35)	15 (48.39)	9 (29.03)	25 (80.65)	5 (16.13)	20 (64.52)

Note: Obs. = 31, critical value = 0.36, * indicates a statistically significant correlation at the 5% level (2-tailed).

Source: Own calculations.

Table 11. Survey results – product.

Factors	A	B	C	D
A – A new solution (uniqueness compared to competitors)	1.00	0.35	0.11	−0.22
B – Protectability (a potential patent protection)		1.00	−0.18	−0.20
C – Product/project expansion potential			1.00	0.37*
D – Value added from the consumer perspective				1.00
	A	B	C	C
Frequency n (% of n)	23 (74.19)	7 (22.58)	26 (83.87)	19 (61.29)

Note: Obs. = 31, critical value = 0.36, * indicates a statistically significant correlation at the 5% level (2-tailed).

Source: Own calculations.

Table 12. Survey results – assessment of market potential of the product/project.

Factors	n	% of n
Only value added from the consumer perspective required	1	3.23
Only a new solution (uniqueness) required	4	12.90
Only fast growth potential required	1	3.23
Both value added and fast growth potential required	18	58.06
Both innovativeness and fast growth potential required	19	61.29
Both innovativeness and value added for consumers required	12	38.71
Innovativeness, value added and fast growth potential required	12	38.71

Source: Own calculations.

Table 13. Survey results – financial criteria.

Financial criteria	Financial participation of the entrepreneur	Market value growth	Sales growth	Payback period	Financial criteria are not crucial (other than financial criteria might play a role)
n	28	11	9	8	3
% of n	90.32	35.48	29.03	25.81	9.68

Source: Own calculations.

Table 14. Probabilities of not being immediately rejected if specific conditions in terms of the financial criteria are not met (in per cent).

	Financial criteria are not crucial	Payback period	Sales growth	An increase of the investee firm value
Financial criteria are not crucial	10	36	39	45
Payback period	36	36	65	71
Sales growth	39	65	39	84
Market value growth	45	71	74	45

Source: Own calculations.

Table 15. Survey results – requirements in terms of return on investment (ROI).

ROI requirements	High ROI is essential	High ROI is essential in the long term	Requirement in terms of a high ROI might be downsized
Frequency n (% of n)	25 (80.65)	2 (6.45)	4 (12.90)
Accepting the project because of a specific ROI value
		n	% of n
ROI is expected to be very high		31	100.00
ROI is expected to be high (in long-term)		6	19.35
ROI is expected to be (just) positive		2	6.45
Zero or negative ROI		0	0.00

Source: Own calculations.

Table 16. Survey results – time horizon of the project/investment.

Time horizon of the investment/project	Up to 1 year	Between 1 and 3 years	Up to 5 years	Up to10 years	More than 10 years
n	2	9	9	8	3
% of n	6.45	29.03	29.03	25.81	9.68
Cumulative frequencies (in per cent)	6.45	35.48	64.51	90.32	100.00
Probabilities of not being immediately rejected because of exceeding the time horizon of the investment (in per cent)	100.00	93.55	64.25	35.22	12.41

Source: Own calculations.

Table 17. Survey results – control and monitoring tools.

Control and monitoring tools	n	% of n
Regular meetings with the entrepreneur and his/her management team	7	22.58
Access to accounting information and reports	6	19.35
Introduction of an enterprise information system (EIS)	11	35.48
Professional management team promoting and protecting the interests of investors	4	12.90
Control and monitoring of cash flows and assets of investee firm	3	9.68

Source: Own calculations.