Behavioral Finance: Factors Influencing Angel Investor Due Diligence

Angel investors invest in high-risk projects and provide an important source of early-stage entrepreneurial financing. When considering an investment, an important decision is how much time to spend on due diligence- deeper investigation into the person, business, and/or industry under consideration...

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Bibliographic Details
Published inAmerican journal of entrepreneurship Vol. 12; no. 1; pp. 6 - 30
Main Authors Forrester, Robert C, Williams, Ralph I., Jr, Manley, Scott C, Martinez, John E, Hair, Joseph F., Jr
Format Journal Article
LanguageEnglish
Published Columbus Academy of Business Research 01.06.2019
Addleton Academic Publishers
Subjects
Adverse selection
Advisors
Angel investors
Angel investors (Persons)
Asymmetry
Behavior
Behavioral economics
Bias
Cognitive psychology
Decision making
Due diligence
Economic aspects
Entrepreneurial finance
Entrepreneurs
Entrepreneurship
Expected utility
Heuristic
Hypotheses
In house
Institutional investments
Management
Moral hazard
Researchers
Startups
Venture capital
United States
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Summary:Angel investors invest in high-risk projects and provide an important source of early-stage entrepreneurial financing. When considering an investment, an important decision is how much time to spend on due diligence- deeper investigation into the person, business, and/or industry under consideration. As angels act individually, different from institutional investors with professional advisors, behavioral factors may particularly influence angels' decisions. Such factors are considered in behavioral finance, which is based on the paradigm that markets are not always rational and are driven by other influencing factors such as overconfidence and risk aversion. To provide insight into factors affecting angel investors' time spent on due diligence, we examine the relationships three factors: an angel's investing experience, an angel's assessment of the firm's top management team (TMT), and the firm's stage of development.
ISSN:2164-9685