DETERMINANTS OF LONG-DISTANCE INVESTING BY BUSINESS ANGELS.doc

DETERMINANTS OF LONG-DISTANCE INVESTING BY BUSINESS ANGELS: EVIDENCE FROM THE UNITED KINGDOM Richard T Harrison, Queen’s University Management School, Belfast, UK( Colin M Mason, University of Strathclyde, Glasgow, Scotland, UK Paul J A Robson, Durham Business School, Durham University, UK ABSTRACT The business angel market is usually identified as a local market, and the proximity of an investment has been shown to be key in the angel’s investment preferences and an important filter at the screening stage of the investment decision. This is generally explained by the personal and hence localised networks used to identify potential investments, the hands-on involvement of the investor and the desire to minimise risk. However, a significant minority of investments are made over long distances. This paper is based on data from 373 investments made by 109 UK business angels. We classify the location of investments into three groups: local investments (those made within the same county or in adjacent counties), intermediate investments (those made in counties adjacent to the ‘local’ counties), and long-distance investments (those made beyond this range). Using ordered logit analysis the paper develops and tests a number of hypotheses that relate long distance investment to investment characteristics and investor characteristics. The paper concludes by drawing out the implications for entrepreneurs seeking business angel finance in investment-deficient regions, business angel networks seeking to match investors to entrepreneurs and firms (which are normally their primary clients), and for policy makers responsible for local and regional economic development. 1. INTRODUCTION The informal venture capital market – which we define as equity investments and non-collateral forms of lending made by private individuals using their own money to invest directly in unquoted businesses in which they have no family connection (i.e. business angels) – plays a major role in the f