Executive forum: Seven ways to stimulate business angels' investments

Government policy to stimulate growth, innovation and especially the creation of new enterprises is rather focused on access to finance mainly through increasing the supply of capital. As formal venture capitalists are moving towards larger deals and shifting their investments to a later stage of development, creating a ‘second’ equity gap, business angels become more important in the financing of seed, early stage and second round phases. Government policy to stimulate financing should hence be considered as a priority. However, policies have to be focused both on the supply side and the demand side and combined with a cultural change. Government should look at innovative ways to stimulate business angel financing rather than coping with market failures by bureaucratic subsidy schemes. The paper identifies seven ways to stimulate business angel investment. Coping with the second equity gap can mainly happen by stimulating syndication and by setting up co-investment schemes. Investor readiness, corporate orientation, business angel networks, business angel academies and the integrated finance concept can be considered as key concepts in coping with the information asymmetry problem.