Valuation of Angel-backed companies: The role of investor human capital
Collewaert, Veroniek Manigart, Sophie
Collewaert, Veroniek
Manigart, Sophie
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2016
Journal
Journal of Small Business Management
Book
Publication Volume
54
Publication Issue
1
Publication Begin page
373
Publication End page
391
Publication Number of pages
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Abstract
This paper examines how angel investors' human capital affects the valuation of their portfolio companies, based on the pre-money valuation of 123 investment rounds in 58 Belgian companies. We argue that angel investors with higher levels of human capital will perceive a higher value-creating potential in entrepreneurial opportunities through their ability to see more value-creating options, a higher value-adding potential post-investment and an enhanced legitimacy provided to the venture. Economic theories suggest they appropriate these rents through lower valuations, while stewardship theory suggests they share value creation with entrepreneurs. Consistent with stewardship theory, we show angel investors negotiate higher valuations when they have higher levels of human capital, more specifically if they studied longer, have a business degree, more entrepreneurial experience or previous professional law experience. As such, our results contrast with the behaviour of venture capital investors who negotiate lower valuations when they have more experience.
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Keywords
Business Angels, Entrepreneurship, Angel Investors