Backing the horse or the jockey? Due diligence, agency costs, information and the evaluation of risk by business angel investors

Harrison, R. T. and Mason, C. M. (2017) Backing the horse or the jockey? Due diligence, agency costs, information and the evaluation of risk by business angel investors. International Review of Entrepreneurship, 15(3), pp. 269-290.

Abstract

This paper explores the argument that business angel investors are more concerned with managing and minimising agency risk than market risk. Based on data on the due diligence process from a survey of business angels in the UK, the paper concludes that business angels do view entrepreneur characteristics and experience as having the greatest impact on the perceived riskiness of an investment opportunity. Further, they emphasise personal and informal over formal sources of information in the due diligence process, and seek information on both the entrepreneur and the venture in determining valuation. Indeed, the reliance of business angels on short-term and subjective information to value investment opportunities leads to the conclusion that their approach to valuation is not a function of the conventional protocols of financial analysis, but of personal relations and assessment.

• Item Type: Articles
• Additional Information: Article #1559.
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Mason, Professor Colin
• Authors: Harrison, R. T., and Mason, C. M.
• College/School: College of Social Sciences > Adam Smith Business School > Management
• Journal Name: International Review of Entrepreneurship
• Publisher: Senate Hall Academic Publishing
• ISSN: 2009-2822
• Copyright Holders: Copyright © 2017 Senate Hall Academic Publishing
• First Published: First published in International Review of Entrepreneurship 15(3): 269-290
• Publisher Policy: Reproduced with the permission of the Publisher