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How business angel groups work: Rejection criteria in investment evaluation

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International Small Business Journal

Published online on

Abstract

In this article, we study the decision-making criteria that business angels (BAs) adopt when screening business opportunities in the different assessment phases (pre-screening, screening and due diligence). We exploit an original dataset of 1942 ventures that sought angel investment from 2008 to 2014 from the members of Italian Angels for Growth (IAG). Results have shown that the emphasis that BAs place on rejection criteria and contact channels varies along the three considered stages of the investment process. In particular, we found that business proposals brought to the attention of BAs by venture capitalists are more likely to get through the pre-screening stage, suggesting an important quality certification role played by venture capitalists. Moreover, at the screening stage (in comparison with the pre-screening stage), proposals are rejected more often for reasons related to the characteristics of the entrepreneur and management team and less often for the lack of business innovativeness. Finally, business proposals showing lower levels of profitability are more likely to be rejected after the due diligence.