On the structure of the informal venture capital market in Sweden: developing investment roles

Abstract

This paper has two objectives: first, to estimate the size of informal venture capital market in Sweden, and second, to explore the heterogeneity of informal investing behaviour. Based on quantitative data on 278 informal venture capital investors and 422 investments, this paper provides an estimation of the size of the informal venture capital market in Sweden and an analysis of its structure by making a categorization of informal investors' investment roles. Four investment roles are identified based on the level of contribution of financial and human resources in the investment situation. The results show that the investment role that an individual assumes in the informal venture capital investment situation is dependent on the availability of the financial and human capital resources, as well as factors related to the willingness to supply them. The actual resource requirements of the firm have been shown to be of less importance in explaining the investment behaviour.

Keywords:

• informal venture capital
• investment roles
• market size
• human capital
• financial capital

Acknowledgements

I would like to thank the Swedish Business Development Agency (NUTEK) and the Swedish Foundation for Small Business Research (FSF) for the funding that made this research possible. I would also like to thank Professor Hans Landström, Professor Harry Sapienza, Professor Shaker Zahra, the editors and three anonymous reviewers for the useful comments on the earlier version of this paper.

Notes

1. P (investor) = [1−exp(−0.585 + 1.011 * Gender − 0.371 * Education)]⁻¹. The percentage of informal investors among non-respondents was estimated to 63% compared to 69% for respondents. Only individuals with probability of being informal investors of over 0.65 were labelled as such. The pre-testing of the model resulted in the accuracy of prediction of 71.5% given the chosen cut-off point.

2. Based on 2002–04 averages excluding buyout investments, SVCA (2004).