Paul: towards a model of business angel investment process

7 important questions on Paul: towards a model of business angel investment process

Familiarization stage, has two main activities

  • Learning about opportunity (angels prefer short business plan)
  • Meeting entrepreneur

Although we have proposed 5 stage model, it would be wrong to see process as fitting. In practice, stages overlap. 
Two mechanisms can be identified which drive forward the angel investment process

  • personal nature of the process
  • activity of assessment

Figure: model of angel investment process

  • demonstrates possibility of a backward step as an agreement is being formulated
  • Angels often have little information
  • any new information or unexpected event can cause angel to reassess his position
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Iteration is a defining characteristic of the angel process. The main iterative loop spans three stages, and there are two more:

  • Familiarization
  • Screening
  • Bargaining
Other stages are:
  • Managing
  • Harvesting

To describe angel investement as orderly, would be simplistic. Many deals do not progress smoothly, number of factors

  • Internal factors: angel can get cold feet
  • External factors

In reaching a decission, an angel must balance risk and reward. An angel will be faced with a choice, characterized by

  • Conflict: may arise over the finer point of the agreement
  • Uncertainty: may surface where doubts persist about ability of entrepreneur behind the business.
  • Complexity: may be increased where angel considered more then one investment opportunity

Ruhnka's Living Dead Investment

Given the high-risk nature of informal investing there is the risk that it will fail or that it only be a moderate success, in which its difficult for angel to exit.

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