The Influence of Geographical Proximity and Industry Similarity in a Business Angel’s Investment Choice

32 Pages Posted: 25 Nov 2011

See all articles by Luca Berchicci

Luca Berchicci

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Jorn H. Block

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Philipp G. Sandner

Frankfurt School of Finance & Management

Date Written: November 25, 2011

Abstract

Business Angels (BAs) play a crucial role in the creation and growth of entrepreneurial ventures. Little is known, however, about their funding criteria. This paper contributes to our understanding of BAs’ funding decisions, by analyzing how their past investments influence the choices of their future investments. We hypothesize that experiential learning processes lead BAs to search for start-ups that are similar to their most recent investments. Using longitudinal data from BAs active in the Internet industry, we find that BAs make trade-offs between geographical proximity and industry similarity when choosing future investments. They tend to invest in ventures that are geographically proximate to their prior investments, but not in the same industry. As geographical distance increases, BAs’ next investment is more likely to be in the same industry sector as the prior investment.

Suggested Citation

Berchicci, Luca and Block, Jorn Hendrich and Sandner, Philipp, The Influence of Geographical Proximity and Industry Similarity in a Business Angel’s Investment Choice (November 25, 2011). Available at SSRN: https://ssrn.com/abstract=1964618 or http://dx.doi.org/10.2139/ssrn.1964618

Luca Berchicci

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Jorn Hendrich Block (Contact Author)

University of Trier - Faculty of Management ( email )

D-54296
Germany

Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Philipp Sandner

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

HOME PAGE: http://www.philipp-sandner.de

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