Business angel investment in the China market.

Abstract

Instead of venture capital (VC), informal private venture (business angel, BA) investment is gettingmore and more important for business start-ups' fund-raising fund-raising, large-scale soliciting ofvoluntary contributions, especially in the United States. Fund-raising is widely undertaken bycharitable organizations, educational institutions, and political groups to acquire sufficient funds tosupport their activities. due to its advantages like low entry barrier, simple-and-quick decision, lowreturn rate requirement, and flexible time limitation. BA investment gradually is taking a moredominant position in financial fields of the global and Chinese market, especially for high-technologyfirms and it will work better with the development of Chinese economic reform and capital marketenvironment. This study briefly reviewed the history, current situation, and trend of BA investmentmarket in China.

Keywords: Business Angel, Start-up, Venture Capital

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Financing problems of SMEs (small and medium enterprises) become the focus of attention as theseenterprises fulfill fulfill also fulfil tr.v. fulfilled, fulfilling, fulfills also fulfils1. To bring into actuality; effect: fulfilled their promises.

2. an essential function in economic development. For SMEs in different stages of businessdevelopment, they face different risk characteristics and have different forms of financing needs.Typically, venture capital plays an important role in new economic development led by high-technology industries. But the importance of business angels has increased in recent years asventure capital funds Venture Capital Funds

An investment fund that manages money from investors seeking private equity stakes in small andmedium-size enterprises with strong growth potential.

Notes: are investing less and less in the smaller initial funding stages.

Individual states are recognising the significant impact of angel investors An individual who investshis or her own money in a private company, which is typically a startup. An angel investor is not anemployee or member of a bank, venture capital firm or other financial institution that normallymakes such investments. on economic development. In China, the new force built by angelinvestors is emerging as well. As a newly-born industry, the Internet has a much lower threshold forentrepreneurship, especially for new graduates from schools, compared with biotechnology, medical,and materials industries. Startups usually require funds of a few hundreds of thousands dollars, aninvestment welcome by BA investment. Therefore, many entrepreneurs rely on angel investors when

it is difficult to get funding from VCs due to their higher criteria.

According to according toprep.1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

3. a definition from the National Venture Capital Association, NVCA NVCA National VentureCapital Association , informal private venture investment market is a venture capital market withoutintermediaries. Free investors and informal investment institutions make equity investment inoriginal ideas or small startups. Investors themselves deal with the whole investment process frompre-investment selection, investment management, to post-investment monitoring and profitrealisation. This kind of investment is called Business Angel investment (BA investment), a termoriginating from some wealthy individuals' "angel-like" funding for charitable theatrical productionsNoun 1. theatrical production - the production of a drama on the stagestaging

production - a presentation for the stage or screen or radio or television; "have you seen the newproduction of Hamlet?" in Broadway in the old times.

Based on the estimation estimation

In mathematics, use of a function or formula to derive a solution or make a prediction. Unlikeapproximation, it has precise connotations. In statistics, for example, it connotes the carefulselection and testing of a function called an estimator. by the United States UnitedStates, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi(9,166,598 sq km), North America. The United States is the world's third largest country inpopulation and the fourth largest country in area. Small Business Administration in 2002, therewere about 250,000 angel investors a year in 1990s. The amount of investment was around US$10billion in that period. Multiplied multiply 1 v. multiplied, multiplying, multiplies

v.tr.1. To increase the amount, number, or degree of.

2. Mathematics To perform multiplication on. by an average investment period of six years, theYears, The

the seven decades of Eleanor Pargiter's life. [Br. Lit.: Bent, 1109]

See : Time overall market size of BA investment is US$60 billion. In the European market, thereare 120,000 angel investors and potential ones are estimated to be over 1 million.

In the past, this kind of investment group was nothing more than a loosely connected networkamong rich people. In recent years, however, angel investors have been forming investment clubs(for example, Indiana Angel Net, Central New York Central New York is a term used to broadlydescribe the central region of New York State, roughly including the following counties and cities:

Cayuga County - AuburnCortland County - CortlandMadison County - Oneida Angels.) There are some investment associations like the Angel CapitalAssociation, ACA ACA - Application Control Architecture , established to improve pubicpubic /pubic/ (pubik) pertaining to or situated near the pubes, the pubic bone, or the pubicregion.

pubicadj.1. understanding of BA investment. Generally speaking, individual angel investors, with financialexpertise, have net assets Net assetsThe difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand.

net assetsSee owners' equity. worth over US$1 million and personal income over US$200,000 (Zoltan and Tarpley, 1998). Thesestartups usually get BA investment after running out of first-round funds (coming fromentrepreneurs themselves, their family, and friends) but before getting support from Venture Capital(Prowse, 1998). Typical BA investment is carried out in two ways, one through close friends and theother through so-called "Angel Networking". The former works by introducing entrepreneurs topotential investors through relatives, friends, colleagues, or professors. And the latter is completedvia angel networking in which finding one angel investor could intrigue IntrigueSee also Conspiracy.Borgias

15th-century family who stopped at nothing to gain power. [Ital. Hist.: Plumb, 59]

Ems dispatch

Bismarck's purposely provocative memo on Spanish succession; sparked Franco-Prussian war(1870). another five to 10, or more.Angel investors like to see exit mechanisms. An exit mechanism means that the angel investor has ameans to cash out on the investment. These exit mechanisms include a public offering of shares on apublic exchange, a buy-back of investor's shares by the principals of the company, or the acquisitionof the angel's position, or the entire company, by a third party. Besides, there is liquidation Thecollection of assets belonging to a debtor to be applied to the discharge of his or her outstandingdebts.

A type of proceeding pursuant to federal Bankruptcy and exit after the business failure of startups(Farrell, 1998; Kroman, 1997). This exit mechanism is often located in a shareholders' agreementshareholders' agreement n. an employment agreement among the shareholders of a smallcorporation permitting a shareholder to take a management position with the corporation withoutany claim of conflict of interest or self-dealing against the shareholder/manager. . Some angelinvestors are not too fussed about specifying a particular exit mechanism. What they want to see is acompany which is run professionally enough to create value and to attract investments from othersources such as venture capitalists Venture Capitalist

An investor who provides capital to either start-up ventures or support small companies who wish toexpand but do not have access to public funding.

Notes:Venture capitalists usually expect higher returns for the additional risks taken. . These angels feelthat, if your company is run professionally and you have the right product or service, eventually abuyer will surface or the company will be able to go public.

Comparison of Business Angels and Venture Capitalists

Many researchers had compared the investment criteria and procedures of business angels (BAs)with that of venture capitalists (VCs) across the full investment process (Freear, Sohl and Wetzel,1995; Osnabrugge, 2000). For example, although both investors reduce agency risks at all stages ofthe investment process, BAs place more emphasis on doing so ex-post investment (the incompletecontracts approach), while VCs stress doing so more ex-ante investment (the principal-agentapproach). Besides, there are many other differences:

Smaller Scale of Financing than Institutional Investment Funds Noun 1. investment funds - moneythat is invested with an expectation of profitinvestment

assets - anything of material value or usefulness that is owned by a person or company

BA investment prevails in smaller deals. US$500,000 is the dividing line Noun 1. dividing line - aconceptual separation or distinction; "there is a narrow line between sanity and insanity"demarcation, contrast, line

differentiation, distinction - a discrimination between things as different and distinct; "it is necessaryto between investment preferences of business angels and that of venture capitalists. Funds frombusiness angels account for 93 per cent of total investment in deals less than US$250,000, while 75per cent of investments come from business angels in deals between US$250,000 and US$500,000.Business angels play a much smaller role when financing exceeds US$500,000. Furthermore, angelinvestors' funds only account for 25 per cent in transactions between US$500,000 to US$1,000,000.Larger investments are dominated by venture capitalists (see Table 1).

Focused Financing on Early Stages of Investment

General speaking, venture investment processes include the seed stage, start up stage, first round,

second round, third round, and bridge loan stage (Barry et al, 1990; Lerner, 1994; Manigart andSapienza, 2000). Research indicates that 48 per cent of funding in the seed stage comes from BAinvestment, the biggest source of funds in that stage. During the start up stage, angels bring 20 percent of funds. In the first and second rounds, 8 per cent of funding come from business angels. Only2 per cent of investment are from business angels in the third round and bridge loan stage. Businessangels' importance in early financing stages is more significant in terms of the numbers of projectsthey participate in. Angels invest in 52 projects, 83 per cent of total, in the seed stage. They alsoinvest in more projects than venture capitalists in the start up stage, during which period angelsinvest in 55 projects, 59 per cent of the total.

Obviously, angel investors are more active than venture capitalists in both the seed stage and startup stage. Angels invest 54 per cent of their funds and participate in 60 per cent of their projects inthe seed stage and start up stage. On the contrary, venture capitalists inject injectv.1. To introduce a substance, such as a drug or vaccine, into a body part.

2. To treat by means of injection. only 20 per cent of their funds, investing in 28 per cent projectsin the same stages. Please note that, to get one decade of data for analysis, the sampling period inthis research is set to start in mid-1980s; this might produce the most optimistic optimist n.1. One who usually expects a favorable outcome.

2. A believer in philosophical optimism.

op estimates of venture capitalists' contributions in the seed and start up stages. We believeventure capitalists contributed much lesser in the early stages of business development after the1990s.Faster and Simpler Decision-making

It might seem that looking for Looking for

In the context of general equities, this describing a buy interest in which a dealer is asked to offerstock, often involving a capital commitment. Antithesis of in touch with. a business angel istougher than looking for a venture capitalist. Nonetheless, it takes one month to arrange a meetingwith a business angel and 1.75 months to sit face to face with a delegate A person who is appointed,authorized, delegated, or commissioned to act in the place of another. Transfer of authority from oneto another. A person to whom affairs are committed by another.

A person elected or appointed to be a member of a representative assembly. from a venture capitalfund. Getting an investment from angels usually takes 2.5 months from the day of meeting, while ittakes venture capitalists 4.5 months to take money out from their pockets (Capon capon

castrated male fowl, larger than broiler, weighing up to 7 lb; produced either by administration ofestrogenic substances or by surgical excision of the testicles. , 1997; Freear, Sohl and Wetzel, 1995).That is because angels have an advantage in numbers in numbered parts; as, a book published innumbers.

See also: Number and most of them invest in fields they are familiar with.

Lower Expected Returns Expected Return

The average of a probability distribution of possible returns, calculated by using the followingformula:

Unlike venture capitalists under great external pressure of profit making, business angels use theftown money for investment. Families with higher income express more preference to risk andliquidity than families with lower income: they would like to bear higher risks to earn higher returns.Similarly, they are willing to make fixed long-term investments for such rewards. Consequently,business angels are less risk-averse and more patient compared with venture capitalists.

In China, business angels expect an annual return of 32.5 per cent while venture capitalists arelooking to earn profits of 40 per cent a year (Jeng and Wells, 2000) BAs are quite different from VCsin terms of harvest mechanism. More often than not, angels exit by selling shares in private markets,while venture capitalists long for initial public offers or mergers and acquisition deals. This is afundamental difference in expectation of return on investments or costs between these two types ofinvestors.

Good Combination of Capital and Experience

Angel investors usually have much experience in business and entrepreneurship, and they are fairlyactive in the investment process. In addition to placing their representatives in the board ofdirectors, most angel investors assume the role of advisers in the firms. Moreover, business angelsparticipate in businesses in which they invest in ways difficult for venture capitalists. About aquarter of angel investors take full-time or part-time jobs in companies they invest in. Someinvestors even take part in the business operation, and that means a lot to technology startups whichoften lack experience. However, business angels' participation does not interfere in those firms'autonomy. Business angels only make investments in limited regions.

Business Angel Investment in the China Market

BA investment in the China market is much smaller in terms of scale than that in the US market. Infact, the "863 Plan" and "Torch Plan", launched in 1986 and 1988 respectively, could be viewed astwo venture capital investment projects by the Chinese government Ever since Republic of Chinafounded in January 1st, 1912, China has had several regional and national governments. List

Chinese Soviet RepublicProvisional Government of the Republic of ChinaReformed Government of the Republic of China

(Li and Wang, 2003). The incubation incubation /incubation/ (in?ku-bashun)1. the provision of proper conditions for growth and development, as for bacterial or tissue cultures.2. effect of BA investment on SMEs in their early stages of business development is recognised bythe market. Many SMEs in China encounter various problems during their development. Fundshortage and financing problems are common for SMEs, and many businesses with good prospectsfailed because of these factors. Therefore, it is urgent for China to leverage experiences of maturecapital markets in foreign countries, incubating the BA investment community and improving thestructure of the domestic capital market.Five Faces of China Business Angels

In China, BA investment emerged with the rise of the Internet and high-tech industries; SOHU(www.sohu.com) and SINA (www.sina.com) both started with business angel investments. Contraryto its important role in both venture investment and economic development in other countries, BAinvestment is in the minority in China. The primary domestic sources of venture capital in China aretechnology loans from government and development loans from banks. Government departments arestill supervisors of technology VC firms established in recent years. This only source of funding ledto the sluggish development of China's venture capital market, in which demands are conspicuouslyconspicuous adj.1. Easy to notice; obvious.

2. Attracting attention, as by being unusual or remarkable; noticeable. See Synonyms at noticeable. unfilled (Liu, Zhou, and He, 2005). At the time of writing, there is no official statistics for the scaleof China's BA investment. But based on a survey conducted by QingKe Co, Zero-2-IPO, (two researchinstitutes), and China Venture Investment Research Institute (Hong Kong Hong Kong (h?ng k?ng),Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. ), China's VCamounted to US$12.8 billion in 2004, of which BA investment only accounted for less than 8 percent.

There are five categories of China angel investors: the first is composed of the new wealth groupwith foreign degrees or Chinese top management in foreign businesses; both have commoncharacteristics such like good educational backgrounds, assorted expertise, and familiarity with thedynamics of global technology and management development. Examples of this group include LeeKai-Fu, president of Google China, and Zhang Ya-Qin, director of Microsoft Research Asia MicrosoftResearch Asia is the Research Department located in Beijing, China.

It's one of the five Research Centers of Microsoft, see Microsoft Research for details. . Both investedin DongFangBoYuan, a startup by students from Tsinghua University Coordinates: HistoryTsinghua University was established in Beijing in 1911 on the site of a former royal gardenbelonging to a prince, and was funded by an indemnity which .

The second category includes bosses of proprietary companies and high-income individuals fromcertain industries. These people are agile investors with entrepreneurship experiences and havemore funds for investment.

Angel investors of the third category usually inherit To receive property according to the state lawsof intestate succession from a decedent who has failed to execute a valid will, or, where the term isapplied in a more general sense, to receive the property of a decedent by will.

inherit v. wealth accumulated accumulate v. accumulated, accumulating, accumulatesv.tr.To gather or pile up; amass. See Synonyms at gather.

v.intr.To mount up; increase. by previous generations. This group needs to make investments in a market short of upwardmomentum but can't find proper investment opportunities.The fourth category is composed of foreigners Foreigners

alienage

the condition of being an alien.

androlepsy

Law. the seizure of foreign subjects to enforce a claim for justice or other right against their nation.

gypsyologist, gipsyologist

Rare. and expatriates with a strong interest in the China market; exemplified by Liu Yao-Han, theinvestor of AsiaInfo, and Massachusetts Institute of Technology Massachusetts Institute ofTechnology, at Cambridge; coeducational; chartered 1861, opened 1865 in Boston, moved 1916. Ithas long been recognized as an outstanding technological institute and its Sloan School ofManagement has notable programs in business, professor Nicholas Negroponte NicholasNegroponte (born 1943) is an architect and computer scientist best known as the founder andChairman Emeritus of Massachusetts Institute of Technology's Media Lab. He is the younger brotherof John Negroponte, current United States Deputy Secretary of State. , who invested in SOHU(www.sohu.com).

Investments made by angel investors of the fifth category are sponsored by the government (Liu andYu, 2006).

China Business Angels Focus on IT Industry

One feature of individual venture capitalists is that they tend to invest in high-tech SMEs, which areless attractive to traditional financial institutions like commercial banks. Three hot regions of ChinaBA investment are Zhongguancun in Beijing, ZhangJiang High-tech Park in ShanghaiShanghai (sh?ng`h?`, shng`h?`), city (1994 est. pop. 12,980,000), in, but independent of, Jiangsuprov., E China, on the Huangpu (Whangpoo) River where it flows into the Chang (Yangtze) estuary. ,and Shenzhen City. According to the China Information Industry Department, China's informationindustry has climbed to be one of the biggest 10 in the world and ranks third in terms of industryscale.

BA investment, also seed money for the incubation of high-tech firms, are government-sponsoredfunds given by the Shanghai City government to assist graduates from universities in Shanghai intheir technology startups. The purpose is to provide a well-established entrepreneurshipenvironment for graduates. Those funds are primarily used to help university graduates, includingstudents in their last year at the university, start up businesses with their research outputs orpatented innovations, offering more opportunities for the students' career development.

Funds are usually provided in two ways. The first is through funding for the incubation of technologyoutputs of the graduates. Shanghai College Technology Output Incubator incubator, apparatus forthe maintenance of controlled conditions in which eggs can be hatched artificially. Incubator houseswith double walls of mud, a fireroom, and several compartments each holding about 6,000 hens'eggs were developed in ancient times; the and Shanghai Technology Entrepreneurship Park areestablished with support from Fudan University Fudan University (Simplified Chinese: ????;Traditional Chinese: ????; Pinyin: Fd n D xu ; Shanghai Jiaotong University JiaotongUniversity, Jiao Tong University or Chiao Tung University was the predecessor of the followinguniversities:

Xi'an Jiaotong University, Xi'an, ChinaBeijing Jiaotong University, Beijing, ChinaShanghai Jiao Tong University, Shanghai, China

, and the Shanghai Institute of Technology The Shanghai Institute of Technology (????????) is aprivate university in Shanghai, China. External links

. They provide places for graduates who have technology outputs and help them turn those outputsinto products. Each incubation project takes six months to one year to complete, and the amount offunding is US$50,000 for each project. The money is mainly spent on leased equipment, outsourcedservices, and stipends for those entrepreneurs (not exceeding RMB RMB Right Mouse ButtonRMB Regional Management Board (USACE)RMB Rolf Maier Bode (musician, band)RMB Ren Min Bi (currency of People's Republic of China) 2,000 per month).The second way is through funding for startups established by graduates with incubated technologyoutputs. The amount of investment is no more than RMB300,000 for each project. Investment isusually made after the review and assessment of applicants' funding needs. The ratio of investmentto entrepreneurs' capital is from 3:1 to 5:1. Entrepreneurs' capital could be paid in the form ofpatented technology or funds (including loans). Investors could mitigate mitigatev.To moderate in force or intensity.

mit iga tion n. their investment risk by making investments in stages based on the developmentof startups. Usually the investment period is from one to two years.Another example is the Innovation Fund for Technology-based SMEs, so-called "Angel Fund", inXiamen. To help companies in Xiamen apply for funding of innovation, the Science & TechnologyDepartment of Xiamen provides training of application process for organisations. The InnovationFund for Technology-based SMEs, approved by the congress, is a special fund from governmentused to support innovations by technology-based SMEs. The investment is focused on the seed andstartup stages.

In addition to the high-tech industry, the real estate industry becomes one of China business angels'favourites because of the soaring soaring: see flight; glider.

soaring or glidingSport of flying a glider or sailplane. The craft is towed behind a powered airplane to an altitude ofabout 2,000 ft (600 m) and then released. housing prices in China. Local rich people andsuccessful private enterprises may become the primary investors in China BA investment despite thegovernment's strong hand in this business for the time being. After reforms and deregulations in thepast 20 years, private businesses have become indispensable in the economic development of China.

With more and more millionaires and billionaires burgeoning, venture capital funds undoubtedlyserve as a good investment vehicle for their money. If China keeps its low interest rate policy, manyprivate enterprises will make more BA investment, especially in wealthy regions like Beijing,Shanghai, Zhejiang, and Jiangsu. Those enterprises and rich proprietors will find it hard to resist thetemptation TemptationTerror (See HORROR.)

apple

as fruit of the tree of knowledge in Eden, has come to epitomize temptation. [O.T.: Genesis 3:1-7; Br.Lit. of high returns from high-tech industry investment (Gu and Bu, 2005).

Business Angel Club in China

In China, BA investment is still a small market, but the demands for BA investment from startups arefairly large. The average BA investment is from US$30,000 to US$300,000 (Ni, 1999). There are twokinds of business angel clubs: loose confederation A union of states in which each member stateretains some independent control over internal and external affairs. Thus, for internationalpurposes, there are separate states, not just one state. and tight confederation, based on thedegree of contact by club members. Members of the loose confederation hold monthly meetings andexchange information on new investment projects. While in the tight confederation, members puttheir funds together and make investments, after collaborative research, through one financialwindow.

Taking Shenzhen City for example, more angel investors are involved with the quick development ofhigh-tech industry in this region. These angels usually form an investment group to lower theinvestment risk. Sometimes it costs only RMB10,000 for each angel investor. The key success factorsfor business angel clubs are good locations, qualified members, and excellent managers. There areoften more opportunities existing in technology- and talent-intensive regions, and members shouldhave economic bases and risk-beating capabilities to protect investors' benefits. It is often necessaryto have the investment projects evaluated by professionals to raise the success rates (Li and Sun,2006).

Limitation on the Development of China BA Investment

The biggest limitations and restrictions on venture capital investment in China lie in its regulationsand systems. For instance, the Security Investment Fund Law of China, effective from I June 2005,failed to solve the problem of legalisation n. 1. the act of legalizing; same as legalization.

Noun 1. legalisation - the act of making lawfullegalization, legitimation

group action - action taken by a group of people for private equity funds. There is no effective way

to protect private property rights due to the lack of a property law in China. This problem couldhinder hinder 1 v. hindered, hindering, hinders

v.tr.1. To be or get in the way of.

2. To obstruct or delay the progress of.

v.intr. the investment from potential business angels. Besides, there is no Industry Capital Lawand modified Business Contract Law, and even the bylaw bylaw n.1. A law or rule governing the internal affairs of an organization.

2. A secondary law.

[Middle English bilawe, body of local regulations; akin to Danish of business contract law providesno protection for angel investors if they are cheated or unfairly treated during the investmentprocess. Another example of the limitation on business angels' intent of investment can be observedin the exclusion of individual investors and non-professional institutions from the scope covered bythe Temporary Law of Startup Business Management, which encourages investment in SMEs,especially high-tech ones.Immature immature /immature/ (im?ah-chldbomacr) unripe or not fully developed.

immatureadj.Not fully grown or developed.immatureunripe or not fully developed. capital market, inefficient financing channels and incomplete exitmechanism together seriously lowers business angels' desire for investment. BA investment instartups stumbles under those limitations and many potential angels still keep their distance fromthe market. As for the matching services provided for BA investment, there are only few serviceproviders with limited influence. Without a complete information network connecting businessangels and entrepreneurs in a specific region, angel investors don't have enough projects to choosefrom and can only act passively in project selection. Entrepreneurs' integrity is another noticeableissue, which, to some extent, reflects the moral hazards Moral Hazard

The risk that a party to a transaction has not entered into the contract in good faith, has providedmisleading information about its assets, liabilities or credit capacity, or has an incentive to takeunusual risks in a desperate attempt to earn a profit before the .

Besides, some potential business angels, either unqualified or conservative, are more risk-averse and

less interested in BA investment. This might be related to the burst of the Internet bubble See dot-com bubble. . These investors lost their money in previous investment projects, therefore, they don'twant to get involved in venture investment again.

There are some quasi-angels emerging with the development of the market economy. These peoplehave accumulated some capital and have some knowledge and experiences in business management.They can be guided and encouraged to participate in venture investment activities.

The savings level of Chinese residents is constantly increasing, and the supply of capital is going up.However, investors are not equipped with the necessary knowledge and skills for rational investmentas the capital and security markets in China are still developing. It might be feasible for certainprofessional investment institutions to manage the pooled capital from investors.

Conclusion

Compared with US BA investment, China BA investment still needs related mechanisms for bettermanagement. According to previous research results and practical opinions, some suggestions are:

Coordination of Government Regulations and Systems

Many private enterprises and proprietors are wealthy but have no intention to make investment inhigh-risk and high-return businesses. Much of the government intervention A procedure used in alawsuit by which the court allows a third person who was not originally a party to the suit to becomea party, by joining with either the plaintiff or the defendant. into the market gap for startup andearly-stage equity finance in many countries is based on the belief that the problem is on the supplyside. Some research (for example, Mason and Harrison, 2002) argued that there is no shortage offinance available. Many business angels are willing to allocate To reserve a resource such asmemory or disk. See memory allocation. a higher proportion of their investment portfolio toinvestments in unquoted companies, with better tax incentives having a positive effect on theirwillingness to invest. Over 90 per cent are currently looking to make more investments. There is aneed for further interventions by policy-makers to remove these barriers so that more small firmscan take advantage of the substantial pool of angel finance available.

For example, the Oklahoma Technology Commercialisation Corporation has a well-thought-out anddesigned programme of tax credits, forums, and other incentives. Six other US states have angelincentive programmes and four states have tax credit programmes. Economic development throughinnovation is stimulated by the presence of angel investing which acts as a catalyst. Economicdevelopment in "have not" states with low levels of venture capital investments is being threatenedby the transfer of local entrepreneurs and angel investors to nearby "have" states with high levels ofventure capital investment activity (Lipper and Sommer Sommer is a surname, from the German andDanish word for the season "summer".

It may refer to:

Alfred Sommer (ophthalmologist) (born 1943), American academicAntnio de Sommer ChampalimaudBarbara Sommer (born 1948), German politician (CDU)

, 2002).A More Compact Matching Mechanism--Business Angels' Network

Previous research has highlighted the existence of an information gap among business angels,mainly due to their desire to keep a low public profile and to the informal character of the market.The creation of business angels' networks was promoted to deal with this gap (San Jose San Jose,city, United StatesSan Jose (s?n?z?`, s?n h?z?`), city (1990 pop. 782,248), seat of Santa Clara co., W central Calif.;founded 1777, inc. 1850. , Roure, and Aernoudt, 2005). Robert D Hisrich, the chairman of theEntrepreneurship Division of the Academy of Management, pointed out that after his survey of thecoastal and western regions in China, "matching" and "credit" are two essential factors for thebuildup buildup also build-up n.1. The act or process of amassing or increasing: a military buildup; a buildup of tension during thestrike.

2. of sustainable angels' networks. Establishment of reliable private credits is even more importantin a country like China. It will be easier to create stable management and investment mechanisms ifprivate capital could be pooled together. This will benefit the growth of the whole BA investmentmarket (Bergeman and Hege, 1998).

If family or close friends don't have enough money for investment, groups with similarcharacteristics can help. The alumni could be a good source because they usually have many thingsin common and they are usually highly educated. A mast mast, large metal or timber pole securedvertically or nearly vertically in a ship, used primarily for supporting sails and rigging. The mast isas old as sailing vessels, and the oldest sailboats depicted (those of ancient Egypt) had a small mastplaced forward and base could be easily established among alumni.

Complete Set of Exit Strategies for Venture Investment

Whether BA investment is successful or not depends on angel investors' ability to exit the investmentand realise capital gains. Current ways of exit for business angels include IPO (Initial PublicOffering) The first time a company offers shares of stock to the public. While not a computer termper se, many founders, employees and insiders of computer companies have found this acronymmore exciting than any tech term they ever heard. , sale, buy-back, and liquidation. Among these,the IPO where the angels may transfer their ownership to other investors after the firm gets listed, isthe best choice. The Second Board Market (non-IPO market) for unquoted companies has not beencreated yet so founders' shares cannot be traded. This is a problem for angel investors to exit themarket. Venture investors could overcome these problems through pumping their funds into capitalmarkets in Hong Kong or other countries, carrying out transactions of the whole or a part of theproperty rights in the domestic property rights trade centres, or exiting the investment via a mergerand acquisition. However, all these rely on the healthy development of venture investment industry.

In China, constantly increasing personal savings imply an abundant supply of private capital. Thewealthy groups show great potential for BA investment. Although an effective group of BAinvestment has not been established, it is expected that one such group will be born under thedevelopment of the capital market, government support and guidance of BA investment, andatmosphere of a good investment environment.

BA investment will play a more important role in China's economic reform, prompting rapiddevelopment of SMEs and improving the structure of the capital market.

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See: Financial intermediary

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Matthew Liu Tingchi

Macao University of Science and Technology

Bryant Chen Po Chang

University of Illinois University of Illinois may refer to:

University of Illinois at Urbana-Champaign (flagship campus)University of Illinois at ChicagoUniversity of Illinois at SpringfieldUniversity of Illinois systemIt can also refer to:

, Urbana-Champaign

Table 1: Comparison of Scale of Investment by BA and VCin Hi-tech Startups

Amount of BA Investment VC InvestmentInvestment

(Ten thousand Numbers of Per cent Numbers of Per cent TotalUSD) projects projects

100 17 10 120 69 137Total 177 100 173 100 350

Source: Angel Capital Association, 2005

Table 2: Comparison of Timing of Investment by BA and VC in Hi-techStartups

Per Cent

Stage BA Investment VC Investment Others Total

Seed 48 44 8 100Start 20 45 35 1001st round 8 69 23 1002nd round 8 58 34 1003rd round 2 52 46 100Bridge loan -- -- -- --

Source: Angel Capital Association, 2005

Table 3: Number of Current VC Firms in China

Number of Firms (Thousands)

2001 2002 2003 2004

Domestic VCs 92 149 162 130Foreign VCs 33 36 37 40Joint-Venture VCs -- 15 17 17Total 125 200 216 187

Source: Zero-2-IPO, 2004

Table 4: The Current VC Scale in China

Capital under Management Available to China

(US$ Million) 2001 2002 2003 2004

Domestic VCs 3,500 4,109 4,853 4,107Foreign VCs 8,000 5,967 5,739 8,081Joint-Venture VCs -- 420 635 635

Total 11,500 10,496 11,227 12,823

Source: Zero-2-IPO, 2004

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