Business Angels: True Founders of Innovation

Although an increasing amount of investors have gathered as networks, fairly little is known about the market for angel funding – it‟s size, scope and the characteristics of the people that make the investments. It is interesting to get an understanding of the type of firms that attract angel funding. Are these mainly high-tech companies or can they be firms focused on purely on client servicing. A question most of us interests and has gained increasing attention over the last few years.. Most academics believe the root of entrepreneurship is situated in the heart of the economy (e.g. California - specifically: Silicon Valley- in the United States, the 8th largest economy in the world, contributing to 13% of the country‟s total GDP). The majority of entrepreneurs rely on capital funding from banks and venture capitalists. However, the last decade the concept of „business angels‟ became more prominent. Business angels are investors looking for investment opportunities while actively participating in the start-up‟s strategy and plans besides providing mere financial support. This is also expressed in the assessment of new investment proposals (Landstrom, 1998) and the willingness to only benefit from „psychic income‟ - income that pleasures the mind. If business angels, or informal investors, are at the heart of economic growth - as stimuli of innovation - the key to funding innovative companies lies in the hands of governments and policy makers. Policy makers have the ability to steer the right funds to the appropriate parties and people on the one hand. The government has the toolkit to amplify opportunities for angel funding, increasing networks for start-up firms, and capital investments from third parties on the other hand. In addition, governments can incorporate so-called award programs that aim to help the best entrepreneurial ideas with cash grants, to stimulate creativity (innovation) even more. Support entrepreneurs with research and development centers, in which new ideas are initiated, and provide the building blocks for the creation of innovative products and services. Shifting policy towards a more investor-friendly environment helps emergent businesses get funding more easily, and effectively. This induces substantial cost savings for governments, while stimulating the economy at the same time. These matters can present the perfect solution for counter-attacking the negative side-effects of a potential recession. The big question, however, remains whether business angel funding leads to innovation.