INTRODUCTION The Role of Angel Investors in the Entrepreneurial Ecosystem
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are the biggest investors in the pre-seed, seed, and ear- ly-stage market, both in terms of amounts invested and the number of investments. It has been estimated that angel investors make 20-40 times as many investments as venture capital firms (many of which are not publicly reported and hence do not appear in investment data- bases). Some angel-backed firms will go on to raise fur- ther rounds of finance from venture capital firms, em- phasizing the role of angel investors at the start of the funding pipeline. It is increasingly common for angels to invest as part of syndicated deals, investing alongside other investors, including other angel organizations, venture capital funds, government co-investment funds, and equity crowdfunding, prompting the suggestion that the funding escalator has been replaced by a ‘bundling model’ in which firms raise funding packages from sev- eral sources at each funding round. 1
ly finance the initial phase of their business through a combination of bootstrapping, their own personal fi- nancial resources and from family and friends. Sources of non-dilutive finance — typically grants and compe- titions — also play an important role at the pre-seed and seed stages. Angel investors, defined as high-net- worth individuals, usually with entrepreneurial or senior corporate backgrounds, who are investing their own money along with their expertise either on their own or, increasingly, as a member of organized angel organiza- tions, are typically the first external investors, although in recent years they may invest in businesses that have raised pre-seed and seed funding from accelerators and business incubators. Angel investors, therefore, play a critical role in the entrepreneurial ecosystem, investing in the early stages of business development where un- certainty is highest, making smaller investments that are uneconomic for venture capital firms to provide. Angels
1 Mason, C (2018) Financing entrepreneurial ventures, in R Blackburn, D de Clercq and J Heinonen (eds) The Sage Handbook of Small Business and Entrepreneurship (Sage: London), pp 321-349.
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