Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Venture capitalism as medicine for the economic crisis

17.10.2008
Are there any business angels in Sweden? Yes, there are, but not as many as often thought. Instead, the private venture capital market in Sweden is dominated by people who invest small amounts of money but also offer a considerable support to young entrepreneurial companies. Not least in times of crisis, it is important to appreciate the value these investments have for a more stable economy.

“The financial crisis is an excellent example of how important it is to build up lasting values in the economy, because it has several cornerstones. Some 30,000 private venture capital investments are made each year in Sweden. These investments are often based on in-depth knowledge of regions, industries, and companies. Knowledge and personal commitment create more value than regular stock-market trading does,” says Sofia Avdeitchikova.

She has just defended her doctoral dissertation at the School of Economics and Management at Lund University about informal venture capital, that is, equity capital that private individuals invest in unlisted companies with which they have no family relation.

This field is under-researched, partly because private venture capitalists are highly invisible. The study is based on interviews with 400 Swedish investors, and it presents average numbers for the last ten years. The dissertation refutes the notion that private venture capitalists are a group dominated by so-called business angels, that is, individuals who invest privately, acquire a significant share of equity, and have a large degree of post-investment influence by working on the board of directors. Only ten percent of private investors are business angels. The rest are people who make a few small investments in their life.

“It’s important to look at these individuals in a life-cycle perspective. No one is born to be a business angel. It’s something you become, and it’s interesting to see how that happens.”

Business angels make investments averaging around fifty thousand euros in young entrepreneurial companies, while smaller investors commit everything from a few hundreds to ten thousand euros. Some small investors are called ‘Lotto’ investors, because they have neither a lot of money nor much knowledge; instead they invest a small sum and come back two or three years later to see whether the investment has resulted in any profit.

At the same time, many investors are true ‘small angels’, with a great deal of personal involvement in the companies. They mediate key contacts and work hard for the company. Their investments are therefore worth more than the sum of money they provide. Often these active investors are small business owners with a good sense for business and an entrepreneurial spirit, and every fifth one is a woman.

“In many cases these investors are more competent to make investments than regional structural funds are, and we should use their knowledge to make right kinds of investments, for example by setting up collaborative arrangements where state actors and private individuals invest 50 percent each.”

The common belief is that private venture capital is evenly spread around the country, but in practice 95 percent of investments go to metropolitan areas and university cities. In Sweden the availability of private venture capital is also rather limited. To shore up the supply of capital to companies, which is important for economic growth, tax incentives and enhancing availability of information about investment opportunities may be a way forward.

“These are measures that have worked in countries with more sophisticated venture capital markets, such as the UK and the US. At the same time, it’s always hard to transfer policy measures from other countries. They need to be adapted to the local context,” says the researcher.

Regarding investments in peripheral regions, which should be increased if we want to achieve more even economic growth, the notion is that they often come from local investors. But Sofia Avdeitchikova found that 80 percent of these investments are made outside the local region.

“This raises questions about how investors get information about the object and how contacts take place. It turns out that investors in these cases think about distance in a different way. Previous experience of the industry of the firm is more important than being close to it geographically. People invest in people in their own network, and it’s easier for them to invest in a place that has a similar business structure, size, values, and traditions as their own.”

Sofia Avdeitchikova publicly defended her dissertation Close-ups from afar: the nature of the informal venture capital market in a spatial context on October 10 at the Department of Business Administration, School of Economics and Management, Lund University.

Kristina Rörström | alfa
Further information:
http://www.lu.se

More articles from Business and Finance:

nachricht Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Fizzy soda water could be key to clean manufacture of flat wonder material: Graphene

Whether you call it effervescent, fizzy, or sparkling, carbonated water is making a comeback as a beverage. Aside from quenching thirst, researchers at the University of Illinois at Urbana-Champaign have discovered a new use for these "bubbly" concoctions that will have major impact on the manufacturer of the world's thinnest, flattest, and one most useful materials -- graphene.

As graphene's popularity grows as an advanced "wonder" material, the speed and quality at which it can be manufactured will be paramount. With that in mind,...

Im Focus: Exotic quantum states made from light: Physicists create optical “wells” for a super-photon

Physicists at the University of Bonn have managed to create optical hollows and more complex patterns into which the light of a Bose-Einstein condensate flows. The creation of such highly low-loss structures for light is a prerequisite for complex light circuits, such as for quantum information processing for a new generation of computers. The researchers are now presenting their results in the journal Nature Photonics.

Light particles (photons) occur as tiny, indivisible portions. Many thousands of these light portions can be merged to form a single super-photon if they are...

Im Focus: Circular RNA linked to brain function

For the first time, scientists have shown that circular RNA is linked to brain function. When a RNA molecule called Cdr1as was deleted from the genome of mice, the animals had problems filtering out unnecessary information – like patients suffering from neuropsychiatric disorders.

While hundreds of circular RNAs (circRNAs) are abundant in mammalian brains, one big question has remained unanswered: What are they actually good for? In the...

Im Focus: RAVAN CubeSat measures Earth's outgoing energy

An experimental small satellite has successfully collected and delivered data on a key measurement for predicting changes in Earth's climate.

The Radiometer Assessment using Vertically Aligned Nanotubes (RAVAN) CubeSat was launched into low-Earth orbit on Nov. 11, 2016, in order to test new...

Im Focus: Scientists shine new light on the “other high temperature superconductor”

A study led by scientists of the Max Planck Institute for the Structure and Dynamics of Matter (MPSD) at the Center for Free-Electron Laser Science in Hamburg presents evidence of the coexistence of superconductivity and “charge-density-waves” in compounds of the poorly-studied family of bismuthates. This observation opens up new perspectives for a deeper understanding of the phenomenon of high-temperature superconductivity, a topic which is at the core of condensed matter research since more than 30 years. The paper by Nicoletti et al has been published in the PNAS.

Since the beginning of the 20th century, superconductivity had been observed in some metals at temperatures only a few degrees above the absolute zero (minus...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Call for Papers – ICNFT 2018, 5th International Conference on New Forming Technology

16.08.2017 | Event News

Sustainability is the business model of tomorrow

04.08.2017 | Event News

Clash of Realities 2017: Registration now open. International Conference at TH Köln

26.07.2017 | Event News

 
Latest News

A Map of the Cell’s Power Station

18.08.2017 | Life Sciences

Engineering team images tiny quasicrystals as they form

18.08.2017 | Physics and Astronomy

Researchers printed graphene-like materials with inkjet

18.08.2017 | Materials Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>