DEFINITIONAL AND SAMPLING CONCERNS IN BUSINESS ANGEL RESEARCH
Ellen Farrell, Saint
Mary’s
University, Canada
Carole Howorth,
University of Nottingham, UK
Principal Topic
The sampling methodologies and definitions employed in entrepreneurship and angel research are problematic (Wetzel, 1983; Bygrave, 1989). Advances in business angel research are hampered by methodologies that are not representative, a condition that is considered irreparable. This paper focuses on how methodology has influenced knowledge about business angels particularly with regards to sampling and non-sampling biases, and representativeness. Definitional concerns pertain particularly to the over-definition of populations by over-specifying the number of investments, the time passed since their most recent investment, and/or the angel’s relationship with the investee. This paper examines 19 angel studies based on these definitional and sampling methodology concerns. Methodologically, the studies are compared to a systematic survey of business registration records to identify a more representative sample of angels. Regarding the definitional issue, whether or not to include family-investees is explored in detail.
Method
Approximately 1,000 newly incorporated firms were randomly sampled from the population of Canadian business incorporation registrations. Directors were interviewed by telephone to identify firms that had been started with angel-type investment. The sample is analysed alongside existing angel studies making direct comparisons where possible.
Results and Implications
Securities regulation records, tax incentive records, angel networks, business introduction services, and association lists and databases are sampling methodologies that de-select various groups of angels. These are enumerated in the study. Surveying the population in general is seen as the most effective method to achieve a representative sample, however, the costs are prohibitive for most researchers. The paper proposed that a random sample of business registrations is the next most effective method of achieving a representative sample. This method only de-selects one group of angels and is relatively cost effective as well. From a definitional standpoint, using this methodology produces a proportion of ventures started by family members. Previously, only two studies assessed the propensity for angels to invest in ventures run by family. By not assessing family investments researchers imply that investments are arms’ length. This study reveals only a few differences amongst the family-investing-only cohort, the family and arms’ length cohort, and the arms’ length-only cohort suggesting little cause for concern about family investors in angel samples.
CONTACT: Ellen Farrell, Saint Mary’s University, Halifax, Nova Scotia, Canada, B3H 3C3; (T) 902 420 5693; (F) 902 420 5119; ellen.farrell@stmarys.ca
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