Business angels and early stage decision making criteria: empirical evidence from an emerging market

How do business angels assess a prospective entrepreneurial firm when they make an investment decision? This article examines a central question that informal venture capitalists have been struggling with for decades: What early stage decision making criteria do investors define and apply to reduce the volume of potential deals to a more manageable size? Based on semi-structured interviews with business angels in an emerging market, we show that investors are focused on the industry structure and product features, on the other side, our results also suggest a very strong support for the personality of the entrepreneur and management team. More specifically, entrepreneur trustworthiness is an essential element affecting an investor's decision to close a deal. Business angels set requirements in terms of the entrepreneur's equity stake in the start-up and monitoring tools to prevent the failure of investee firms. Our findings suggest that if there are warning signs that the project is in an existential crisis, most of the investors will reject their participation. We believe that our empirical results support both researchers and practitioners to establish a better understanding between the well-developed financial theories and the underresearched informal venture capital market in a Central and Eastern European country.