Table Of Contentinformal venture capital
INFORMAL VENTURE CAFiTAL:
INVESTORS, INVESTMENTS AND
POLICY ISSUES IN FINLAND
Annareetta Lumme
Kera Ltd.
Colin Mason
University of Southampton
Markka Suomi
Helsinki University of Technology
KLUWER ACADEMIC PUBtlSHERS
Boston/Dordreclit/London
A C.I.P. Catalogue record for this book is available from the Library of Congress.
333.dM
ISBN 0 7923 8111-4
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CONTENTS
List of Figures
vii
List of Tables
ix
Foreword
xi
Preface
xiii
1 Entrepreneurship and Venture Capital
1
PART ONE INFORMAL VENTURE CAPITAL IN
21
FINLAND: INVESTORS AND
INVESTMENTS
2 Methodology
23
3
The Characteristics of Business Angels
29
4 Deal Flow
35
5 Investment Activity
41
6
The, Modus Operandi of Business Angels
53
7
Investment Motives and Decision-Making
59
8
The Value-Added Contribution of Business Angels 69
9 Investment Performance
75
10 Future Investment Activity
85
11
The Size of the Informal Venture Capital Market in 95
Finland
PART TWO POLICY ISSUES
101
12
Promoting Informal Venture Capital: Some
103
Preliminary Considerations
13
Promoting Informal Venture Capital: 1. Business
109
Introduction Services
14
Promoting Informal Venture Capital: 11. Co-
133
Investing, Syndication and Indirect Investment
Models
15
Promoting Informal Venture Capital: III. Tax
147
Incentives
16 Conclusion
155
References
165
Index
175
vu
LIST OF FIGURES
1.1 Sources of equity finance at different stages in the company 10
life-cycle
1.2 The small firm equity 10
1.3 Finland: provinces and major urban areas 15
3.1 Age distribution of active investors at the time of interview 30
3.2 Main source of active investors'wealth 31
3.3 Type of education of investors 31
3.4 Level of education of investors 32
4.1 Number of investment opportunities received per year 36
4.2 The investment propensity of business angels 37
4.3 How active and potential investors get information on 38
investment opportunities
4.4 Active investors' assessment of the standard of information 38
obtained from different sources
5.1 Number of investments made 42
5.2 Value of investor portfolios 42
5.3 Cumulative distribution of investment portfolios per investor 43
5.4 Cumulative distribution of number of investments per 43
investor
5.5 Size of investments: breakdown by investment 44
5.6 Size of investments: breakdown by investor 44
5.7 Distribution of investments by stage of business 45
development
5.8 Proportion of investors who have invested at particular 45
stages of enterprise development
5.9 Distribution of investments by industry sector 47
5.10 Distance of investee businesses from the investor's home or 47
workplace
5.11 Investment instruments 48
6.1 Investor's relationship with the investee business prior to the 55
investment
7.1 Motives for making an investment 61
8.1 Roles of business angels in their investee businesses 70
8.2 Frequency of contact between business angels and their 70
investee companies
9.1 Performance of exits 76
9.2 Exit routes 76
9.3 Performance of investments in current portfolio 80
9.4 Anticipated exit route for investments in current portfolio 80
10.1 Cumulative distribution of the amounts invested and 86
amounts available for investment: active investors
VIU
10.2 Inforaial venture capital investments as a proportion of the 86
total investment portfolio of active investors: current and
future
10.3 The preferred size of investment of active and potential 88
investors
10.4 Stage of business development investment preferences: 88
active and potential investors
10.5 Obstacles to making investments 90
11.1 Investors' taxable asset values in ascending order 97
11.2 Investors' available funds for investment purposes 97
13.1 The effect of various forms of assistance on the investment 110
activity of business angels
13.2 Representative examples of business introduction services in 113
the United Kingdom
13.3 Investor interest in the computer matching model 115
13.4 Investor interest in the investment opportunities magazine 117
model
13.5 Investor interest in the on-line data base model 118
13.6 Investor interest in investment forums 119
13.7 Alternatives for organising business introduction services 126
13.8 The organisation of the Finnish matching service 129
13.9 One of the investments arising from the Finnish Matching 131
Service
14.1 Investor interest in the fund model 139
14.2 The Sand Hill Financial Company 140
14.3 Suitability of various fund models for different investor 142
types
14.4 IM InnovationsMarknaden AB 143
14.5 Investor interest in an OTC market 143
14.6 Investor interest in the investment company model 144
15.1 Tax Incentives for Informal Venture Capit^ in the United 148
Kingdom: the Business Expansion Scheme (BES) and the
Enterprise Initiative Scheme (EIS)
IX
LIST OF TABLES
1.1 Trends in the Finnish venture capital industry 17
1.2 Investments by Finnish venture capital funds by stage of 17
investment
2.1 Sources used to identify investors and their effectiveness 26
3.1 Employment background of active investors 33
3.2 Functional areas of expertise of business angels 33
7.1 The most important investment criteria of business angels 63
7.2 Most important reasons for rejecting investment 65
opportunities
8.1 Contribution of business angels to their investee businesses 71
8.2 The importance of the contribution made by business angels 73
to their investee businesses: a self-assessment
9.1 Methods of exit and performance of investment 78
11.1 Geographical distribution of business angels in Finland 98
12.1 Preconditions for informal venture capital activity and the 105
ways in which they might be met
14.1 The strengths and weaknesses of venture capital funds: the 134
perspective of business angels
15.1 Advantages and disadvantages of tax-related incentives 147
