Internationalization of business angel investments: The role of investor experience

https://doi.org/10.1016/j.ibusrev.2022.102033Get rights and content

Highlights

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    We examine BAs’ internationalization and the role played by investment and entrepreneurial experience.

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    We study cross-border deals and cultural distance.

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    We find that experience fosters the internationalization of BAs’ investments

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    We find that the experiential background of BAs does not matter in the same way in Europe and in the US

Abstract

In this study, we examine business angels (BAs)’ appetite for investing abroad and the role played by investment and entrepreneurial experience. To investigate BAs’ propensity to internationalize their investments, we study cross-border deals and culturally distant investments. Using an international sample of US and European BA deals, we find that both individual investment and entrepreneurial experience foster the internationalization of BAs’ investments, consistent with the predictions based upon the local bias theory. When splitting experience into domestic and foreign, we find that the former increases while the latter decreases local bias. When we separate US and European BAs, we find that the experiential background of BAs does not matter in the same way in Europe and in the US: while the general results are confirmed in Europe, both investment and entrepreneurial experience have a reduced impact in the US. We interpret these results in light of the reduced risk aversion of US BAs that lowers transaction costs.

Section snippets

1. Introduction

Business angels (BAs) have typically been portrayed as investors who invest in local companies (Maula et al., 2005, Wetzel, 1983). They tend to overweight geographically close investment opportunities because geographical proximity to investment targets facilitates the screening and evaluation of start-ups and allows BAs to efficiently provide post-investment advice and monitoring. This limitation in the geographic scope of investments, besides providing informational advantages to BAs, also

2 Literature review and theoretical background

The accelerating integration of global capital markets in the past two decades has affected the investment strategies of different typologies of investors markedly, providing them with the opportunity to diversify their investments internationally in public markets and realize potential gains (Chan et al., 2005). The globalization of financial markets has also gathered pace in private, unlisted markets, including VC and BA markets that have expanded in most developed and developing countries (

3.1 Data source

The main data source for this study is Crunchbase, a platform maintained by Crunchbase, Inc. for finding business and financing information about private and public start-ups. Crunchbase derives its data from two main sources: a large network of investment firms and a community of contributors (i.e. executives, investors, and entrepreneurs). Information added to the dataset is reviewed by the managing team of Crunchbase and processed with artificial intelligence and machine learning algorithms.

4.1 Role of experience on the internationalization of BA investments

In the empirical analysis, we estimated two econometric models (probit and ordinary least squares (OLS) regressions) to investigate the effects of BAs’ characteristics on the probability of making cross-border investments and on the cultural distance of their investments. Table 10 shows the results of estimates aiming to test H1: in the first column, the dependent variable is a dummy indicating whether it is a cross-border deal, while the second column reports the results related to cultural

5. Implications and concluding remarks

A central argument in much of the research on international finance is that the unequal distribution of information in international financial markets is related to transaction costs that drive investment decisions and that determine the “local bias” in investors’ investment attitudes (Coval and Moskowitz, 1999, Coval and Moskowitz, 2001, Ivkovicz and Weisbenner, 2005). The increase in the globalization of financial markets is deemed to contribute to reduce the “local bias” and possibly foster

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