Blackwell Reference Online

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Informal venture capital (IVC) - investments and noncollateral forms of lending made by private individuals (‘business angels’) using their own money directly in unquoted companies in which they have no family connection - plays a key role in the financing of emergent businesses in at least three respects. First, IVC occupies a critical position in the growth firm financing spectrum, filling the gap between founders, family and friends (which is likely to be used up getting the business through the proof-of-concept stage) and institutional venture capital funds (which because of their high transactions costs, normally do not make investments less than $500,000) ( Freear and Wetzel 1990 ). Indeed, this role is of growing economic significance over time: In an article “No Slacking in Silicon Valley,” for example, Business Week (August 31, 1998, p. 48) reported that venture capital investors “no longer want to be bothered with small-fry opportunities. The average size of deals has climbed 27%, to $5.3 million, in the past two years. … To seed deals too small for venture capitalists, private investors are jumping into the fray. … This … is helping the Valley refuel itself.” Second, the IVC market is substantially larger than the institutional venture capital market in terms of the amounts invested in businesses at their start-up and early growth stage. Establishing the size of the ... log in or subscribe to read full text