Angel Investing in Finland: An Analysis Based on Agency Theory and the Incomplete Contracting Theory

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dc.contributor Svenska handelshögskolan, institutionen för företagsledning och organisation, entreprenörskap och företagsledning sv
dc.contributor Hanken School of Economics, Department of Management and Organisation, Entrepreneurship and Management en
dc.contributor.author Lahti, Tom
dc.date.accessioned 2009-01-07T14:03:42Z fi
dc.date.accessioned 2011-03-02T13:23:10Z
dc.date.available 2009-01-07T14:03:42Z fi
dc.date.available 2011-03-02T13:23:10Z
dc.date.issued 2009-01-07
dc.identifier.isbn 978-952-232-016-2
dc.identifier.issn 0424-7256
dc.identifier.uri http://hdl.handle.net/10227/297
dc.identifier.uri URN:ISBN:978-952-232-016-2
dc.description.abstract Wealthy individuals - business angels who invest a share of their net worth in entrepreneurial ventures - form an essential part of an informal venture capital market that can secure funding for entrepreneurial ventures. In Finland, business angels represent an untapped pool of capital that can contribute to fostering entrepreneurial development. In addition, business angels can bridge knowledge gaps in new business ventures by means of making their human capital available. This study has two objectives. The first is to gain an understanding of the characteristics and investment behaviour of Finnish business angels. The strongest focus here is on the due diligence procedures and their involvement post investment. The second objective is to assess whether agency theory and the incomplete contacting theory are useful theoretical lenses in the arena of business angels. To achieve the second objective, this study investigates i) how risk is mitigated in the investment process, ii) how uncertainty influences the comprehensiveness of due diligence as well as iii) how control is allocated post investment. Research hypotheses are derived from assumptions underlying agency theory and the incomplete contacting theory. The data for this study comprise interviews with 53 business angels. In terms of sample size this is the largest on Finnish business angels. The research hypotheses in this study are tested using regression analysis. This study suggests that the Finnish informal venture capital market appears to be comprised of a limited number of business angels whose style of investing much resembles their formal counterparts’. Much focus is placed on managing risks prior to making the investment by strong selectiveness and by a relatively comprehensive due diligence. The involvement is rarely on a day-to-day basis and many business angels seem to see board membership as a more suitable alternative than involvement in the operations of an entrepreneurial venture. The uncertainty involved does not seem to drive an increase in due diligence. On the contrary, it would appear that due diligence is more rigorous in safer later stage investments and when the business angels have considerable previous experience as investors. Finnish business angels’ involvement post investment is best explained by their degree of ownership in the entrepreneurial venture. It seems that when investors feel they are sufficiently rewarded, in terms of an adequate equity stake, they are willing to involve themselves actively in their investments. The lack of support for a relationship between increased uncertainty and the comprehensiveness of due diligence may partly be explained by an increasing trend towards portfolio diversification. This is triggered by a taxation system that favours investments through investment companies rather than direct investments. Many business angels appear to have substituted a specialization strategy that builds on reducing uncertainty for a diversification strategy that builds on reducing firm specific (idiosyncratic) risk by holding shares in ventures whose returns are not expected to exhibit a strong positive correlation. fi
dc.language.iso en
dc.publisher Svenska handelshögskolan sv
dc.publisher Hanken School of Economics en
dc.relation.ispartofseries Economics and Society
dc.relation.ispartofseries 191
dc.rights Publikationen är skyddad av upphovsrätten. Den får läsas och skrivas ut för personligt bruk. Användning i kommersiellt syfte är förbjuden. sv
dc.rights This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited. en
dc.rights Julkaisu on tekijänoikeussäännösten alainen. Teosta voi lukea ja tulostaa henkilökohtaista käyttöä varten. Käyttö kaupallisiin tarkoituksiin on kielletty. fi
dc.subject business angels fi
dc.subject venture capital fi
dc.subject agency theory fi
dc.subject due diligence fi
dc.subject control fi
dc.subject contract fi
dc.subject.other Management and Organisation fi
dc.title Angel Investing in Finland: An Analysis Based on Agency Theory and the Incomplete Contracting Theory fi
dc.type.ontasot Doctoral thesis en
dc.type.ontasot Väitöskirja fi
dc.type.ontasot Doktorsavhandling sv
dc.type.dcmitype Text
dc.date.accepted 2009-01-17

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