ANGELS AND NON-ANGELS:
ARE THERE DIFFERENCES?
JOHN FREEAR, JEFFREY E. SOHL, and WILLIAM E. WETZEL, JR.
Center for Venture Research
University of New Hampshire

The market for informal venture capital is an elusive and nearly invisible source offinancing for entrepreneurial ventures. This marker consists of a diverse set of high ner worth individuals (business angels) who invest a portion of their assets in high-risk, high-return entrepreneurial ventures.
The emerging consensus of the characrerisrics of the individual investor is that of a well-educated, middle-aged individual with considerable business experience and a substantial net worth. These informal investors appear to prefer investing in the early start-up stage of the venture and, if given a choice, prefer that their investments be located close to home. One consequence of this consensus is the tendency to assume that the traits of these business angels are as rightly clustered around the norm as are the traits of venture capital finds. They are not.
In terms of their competence in the many areas of venture investing, these individual investors range ffom the successfil, cashed-out entrepreneur on the one hand to individuals with little or no experience with venture investing on the other. At the same rime, little is known about the characrerisrics of high net worth individuals who never ventured where angels dare lo tread, or about these non-angels’ propensity to join the fold. Thus, this study seeks tofill the void by examining the characteristics of high net worth individuals regardless of their investment history or their interest in venture investing.
An analysis of rhe data reveals three groups of high net worth individuals: business angels with experience investing in entrepreneurial ventures, interested potenrial investors with no venture investment history but who express a desire to enter the venture investment market, and uninterested potential investors who under no circumstances would consider investing in entrepreneurial ventures as purr of their investment strategy. Business angels and porenrial investors (both the interested and non-interested segment) share similar views about the economic significance of the entrepreneur and the diflculty in securing the equity capital for developmenr of the venture. As the issues move ffom the general to the specific, divergence in investment attitudes takes place among the two groups, but this divergence is in terms of magnitude or intensity, rather than in contrasting or opposing views of the

EXECUTIVE
SUMMARY

Address correspondence to William E. Wetzel, Jr., Center for Venture Research, The Whittemore School of
Business and Economics, University of New Hampshire, Durham, NH 03824
The authors wish to acknowledge the valuable assistance of Deborah Hodge in the data collection phase of this study.
Journal of Business Venturing 9.109-123
0 1994 Elsevier Science Inc., 655 Avenue of the Americas, New York, NY 10010

109

110

J. EREEAR ET AL.

process. The potential investor tends to view investing in entrepreneurial ventures on a smaller scale than the active investor, especially in terms of the dollar amount committed to any one investment. While the business angel is more interested than the potential investor across all stages of financing, the interest for both groups increases as the type offinancing progresses from the seed stage to expansion financing. In contrast, the potential investor is more likely to seek diversification as a motivation for venture investing than their angel counterparts.
The potential investor pool is segmented into those potential investors who appear willing to take on the role of business angels and those individuals who have no desire to participate in the venture market. For the interested group to increase their interest in providing venture capital, these potential investors want assistance in monitoring the performance of the venture investment, followed by assistance in