Q: Let's start with the basics: Who are Business Angels, what are BA networks, and why are they playing an even larger role in start-up businesses?
A: Business Angels (BAs) are individuals who evaluate, select and eventually finance the innovative entrepreneurial endeavors they believe hold the most promise. Business Angels Networks (BANs), are nothing more than an association of business angels, around which investors orbit. Such networks are important due to their role as facilitators or intermediaries between the entrepreneur pitching an idea or business and the angel who may finance it.
Let's dig deeper from an "economist's perspective": Financing of innovation is a particularly fractioned and imperfect market; stemming from the very innovative processes themselves. Innovation, by nature, is an extremely uncertain enterprise, because its results are not ascertainable. Inherent to it are huge problems of communications, or rather, it presents huge imbalances in information flows between the entrepreneur looking for funding and the financier who may fund them. Because of its underlying incertainty and problems with communications, traditional financial markets, such as bank lending, are extremely inefficient to consider them.
This is why, over the last few decades, "Alternative Financial Markets" have taken hold; largely responsible for financing innovation in place of those traditional loan institutions. Namely, the most important being Venture Capitalists and Business Angels. These two financial resources have some common features: both, for example, don't just offer funding, but also expertise in terms of technical or managerial competencies, or a know-how of the specific industry. It is this aspect that allows them to bring uncertainty and communications asymetries down.
In short, even though these new financial markets have exploded in certain countries more than others, they have risen in importance precisely for the fact that they can counter the inherent friction of innovation finance to further expand start-up businesses and entrepreneurship.
Q: Your research is centered around how an entrepreneurial idea gets transformed into a actual start-up business, by way of a sort of empirical process, 'the matching function'. Can you elaborate on this?
A: Along with my colleague, Angela Cipollone, we've started examining the aggregate BA market from an economist point of view, not from a management one. Our aim is to identify a value for the entire BA market, between the offer (by entrepreneurs) and the buyers (business angels); how it works and how efficient it truly is. We've produced two papers detailing our results: Entrepreneurs meet financiers: Evidence from the business angel market (Journal of Business Venturing, 2019) e Market frictions in entrepreneurial innovation: Theory and evidence (Journal of Economic Behavior and Organization, 2019).