Backing the horse or the jockey? Agency costs, information and the evaluation of risk by business angels

Harrison, R.T. and Mason, C. (2002) Backing the horse or the jockey? Agency costs, information and the evaluation of risk by business angels. In: Bygrave, W.D., Brush, C., Davidsson, P., Fiet, J., Greene, P., Harrison, R.T., Lerner, M. and Meyer, G. (eds.) Frontiers of Entrepreneurship Research 2002: Proceedings of the Twenty-Second Annual Entrepreneurship Research Conference. Babson College: Massachusetts, MA, USA. ISBN 9780910897235

Abstract

This paper explores the argument that business angel investors are more concerned with managing and minimising agency risk than market risk. Based on 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: Book Sections
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Mason, Professor Colin
• Authors: Harrison, R.T., and Mason, C.
• College/School: College of Social Sciences > Adam Smith Business School > Management
• Publisher: Babson College
• ISBN: 9780910897235