Passion and... the patience of angels
Veroniek
Collewaert has researched Flemish, Walloon and Californian
entrepreneurs and their business angels, or angel investors as they are known in
the US. Like California’s Silicon Valley, the Mecca of American venture capital,
Flanders, too, has its business angels: private individuals with a strong
entrepreneurial spirit who provide start-up companies with advice and capital.
But aren’t they just a pale imitation of their winged Californian counterparts?
“Not one bit - they’re just as dynamic,” stress PhD candidate Veroniek
Collewaert and Professor Sophie Manigart. The remarkable
similarity between Flemish and Californian business angels is just one of the
many striking conclusions in Veroniek Collewaert’s doctoral thesis. The focus of
her research between October 2005 and May 2009 was pre- and post-investment
problems between business angels and entrepreneurs.
A year spent researching her thesis at California’s Stanford University gave Veroniek Collewaert a chance to study California’s business angels, business angel funds and business angel clubs at first hand. “Business angels first came to prominence in Silicon Valley. In the 1980s and 1990s, the Valley was a Mecca for venture capital as well as for technological development,” explains Sophie Manigart, who, in the late 1990s, pioneered the Vlerick Business Angels Network (Vlerick BAN), which is now part of BAN Flanders.
Pairs
Veroniek Collewaert chose two sample groups for her research: the first consisted of pairs of Belgian entrepreneurs and their business angel(s), the second of Californian pairs.
Although the Flemish business angels measured up to their Californian colleagues, Veroniek Collewaert observed a few striking differences among the many similarities. “Business angels often work in an industry that they know well. That’s certainly the case in Flanders. Many Flemish business angels operate in traditional industries, while the Californian business angels are heavily involved in high-tech companies because of their concentration in Silicon Valley. Californian business angels also invest larger sums, have more business angel clubs and business angel funds and do more to set up organised syndicates within advanced networks that – unlike in Flanders – have to manage without government support.”
Yet more than half of Flemish business angels were found to be involved in high-tech businesses or in the technological development of companies in traditional industries. Veroniek Collewaert again: “They want to invest in new, innovative ideas, new products, new processes. That’s why their familiarity with the industry is so pertinent. It’s one reason why I approached the innovation aspect from two angles: innovation in the form of new technology and innovation as the way in which a company adapts to new market circumstances.”
Men’s business
“It’s revealing that, unlike their Flemish counterparts, Californian business angels show little interest in having a seat on the board of ‘their’ company, although they do remain active in it,” Veroniek Collewaert observes. Business angels are predominantly men. The number of women in the two sample groups studied can be counted on the fingers of one hand. The two groups of Belgian and Californian entrepreneurs each contained two women, and there were even fewer among the business angels: only one in each sample group.
According to Veroniek Collewaert, the fact that this is almost an exclusively male-dominated world can impact on the genesis and nature of conflicts between entrepreneurs and business angels. An important part of her research concentrates on post-investment problems. “I talked to both entrepreneurs and business angels and met pairs that got along famously and pairs where relations were more distant,” she explains. “These conversations led me to focus my research on post-investment issues. Pre-investment issues exist too, but tend to be different. In the early stages, business angels mainly have problems finding a suitable investment opportunity. Networks of business angels help: they get grants to act as dealmakers matching supply and demand.” This raises the question whether grant-supported networks really work and – above all – whether they attract less viable start-ups. Veroniek Collewaert refutes this: “That’s not the case. Entrepreneurs that hook up with a business angel and find financing through this route prove that these networks are useful.”
Conflicts
To gain a proper understanding of the conflicts between business angels and entrepreneurs, Veroniek Collewaert also spent some time researching “conflict literature”. Comparing and contrasting different views can be enriching and, depending on the nature of the conflict, can have a positive or negative effect. Arguments about strategic decisions usually have a positive impact, character conflicts are the most difficult to bend in a positive direction. For Veroniek Collewaert, it all comes down to channelling conflicts in a positive direction. “You can only resolve conflicts satisfactorily by creating a constructive environment in which all parties trust one another. This environment also has to be ‘safe’: entrepreneurs must feel psychologically safe and not be afraid to say what they think. Fear of contradiction prevents many entrepreneurs from having an open-hearted relationship with their business angel.”
According to Sophie Manigart, this fear has a negative impact on a company’s creativity. Conflict without a safe environment can call the partnership between entrepreneur and business angel into question, which could prompt one of the parties to withdraw. This observation applies as much to Flanders as it does to Silicon Valley.
Interference
For her research, Veroniek Collewaert selected teams in the middle of their relationship. “That’s the time when efforts start to bear fruit. In the early days there’s the honeymoon period and at the end both parties are busy thinking about their separation.”
Assessments of the selected teams of entrepreneurs and business angels revealed many different types of conflicts, including those on growth strategy, the entrepreneur's remuneration, strategic choices, product development, the decision whether to outsource or not, the speed of growth and personnel. “It was fascinating to observe how far the business angel could interfere in the entrepreneur’s work,” explains Veroniek Collewaert. “In some cases, the business angel was too eager to take control rather than remain a financier and advisor. The entrepreneur can accept this interference or refuse it. And that can lead to conflict. Another source of conflict is the reticence of some entrepreneurs. When they don’t want to share ‘their’ invention with the business angel and are only interested in the injection of capital, they’re heading for problems.”
Veroniek Collewaert admits that it was not easy to convince entrepreneurs and business angels to participate in her research, particularly those who had been through a conflict. In such cases it was necessary to hear both sides of the story.
Patience and passion
“I found that business angels have much more patience than venture capitalists,” she stresses. “Venture capitalists liquidate their investment much more quickly when it doesn’t produce the desired results. There are also more bankruptcies among young companies financed by venture capitalists than among those under the wing of a business angel.” Sophie Manigart points out that this shows how important business angels are in the seed money phase of a start-up company: “They want to take risks. They’re not more naive than venture capitalists, it’s just that business is their passion. They’re more easily caught up in the entrepreneur’s story. And don’t forget that, on average, they make the same return as a venture capitalist.” She finds it regrettable that business angels often have trouble withdrawing their investment in a start-up company. “Business angels should be able to sell their shares to venture capitalists with a nice profit, but the latter prefer to invest directly in the company. Business angels aren’t really rewarded for their efforts during the seed money phase.”
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Flemish business angels aren’t just a pale imitation of their Californian counterparts Although business angels in Flanders and California show striking similarities, there are still salient differences between them. The similarities
The differences
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More information:
Veroniek Collewaert
Tel: + 32 9 264 79 60
veroniek.collewaert@ugent.be
Sophie Manigart
Tel: + 32 9 210 97 87
sophie.manigart@vlerick.be