Publications

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New Venture Legitimacy: the Conditions for Angel Investors
Becker-Blease and Sohl
Small Business Economics: An Entrepreneurial Journal, December 2015.

Favorable legitimacy judgments by potential resource providers are critical for the survival and growth of new ventures. We examine which aspects of a venture’s activities, structures, and outcomes, as conveyed by its narrative, are associated with legitimacy judgments by potential angel investors in a sample of 176 new venture proposals. We find that entrepreneurial ventures with quality top management teams, advisors, and developed products are viewed more favorably by angel investors

Do Entrepreneurship and High Tech Concentration Create Jobs? Exploring the growth in employment in U.S. metropolitan areas from 1991 to 2007
Gittell, Sohl and Tebaldi
Economic Development Quarterly, May 2014.

Technological concentration and innovation have been identified as important forces behind growth, and entrepreneurship has been recognized as an important link between new knowledge and economic growth. This paper examines the influence of entrepreneurship and technology concentration on employment growth in U.S. metropolitan areas (MSAs) over the course of the last full business cycle from 1991 to 2007. The findings are in support of the efficacy of entrepreneurship together with high technology expansion in job creation. The findings question the view that entrepreneurship in and of itself or a high but not growing high technology concentration can be strong contributors to employment growth. In contrast, our analysis indicates that MSAs with growing high tech activities and above-average entrepreneurship can be expected to add jobs much faster than other MSAs. The findings suggest a need for a more targeted approach to economic development and job creation.

Initial Public Offerings and Pre-IPO Shareholders: Angels Versus Venture Capitalists
Johnson and Sohl
Journal of Developmental Entrepreneurship, Vol. 17, No. 4, 2012.

At the time of an initial public offering, shares in a firm are typically held by venture capitalists, insiders, corporate investors and angel investors.  We examine the role of angel investors in the IPO process.  We find that angel investors provide equity capital in industries venture capitalists are less likely to serve and that shareholders in angel backed IPO firms are more likely to sell their shares at the time of the offering. Where venture capital backed IPO firms have higher underpricing, angel backed IPO firms do not, implying that angels may be the preferred investors for early-stage firms.

The Changing Nature of the Angel Market
Sohl
Handbook of Research on Venture Capital: Volume 2, Hans Landstrom and Colin Mason, eds., Edward Elgar Publishers: UK, October 2012, pgs. 17-41.

The scope of this chapter is a discussion of the key components in the changing nature of the angel market, including current and future trends, the reasons for these changes and their implications for the continued growth and development of angel investing.  The first section outlines important dimensions of the angel market, including the market size and scale and the changing capital gap, especially the potentially systemic shift of angels from seed and start-up stage investing to a mix of seed and post-seed stage investing.  The second section develops and estimates some of the important metrics in measuring the pulse of the angel market over time.  These market level statistics provide important indications of angel activity.  In the third section recent research on return rates and angel backed Initial Public Offerings (IPO) offer insights into the role of angels in the exit event and the value of angel versus venture capital funding at the IPO.  The fourth section discusses the evolution of angel groups, which began in 1996 and have spread worldwide, including regional and country based angel groups.  The structure and investment practices of these groups are also examined.   The fifth section traces the development of women angels, who have progressed from a niche in the angel market into a viable part of angel investing, especially in the context of investments in women-owned businesses. In the final section potential areas of future research are outlined. 

Angles on Angels and Venture Capital: Financing Entrepreneurial Ventures
Freear and Sohl
Financing Economic Development in the 21st Century, 2nd Edition, Z. Kotval and S. White, eds., M.E. Sharpe, Inc: NY, August 2012, pgs. 224-244.

Who are the angels and venture capitalists and what role do they play in the financing of entrepreneurial ventures? How important is private equity to the U.S. economy? These and many other more specific questions relating to private equity financing are addressed in this chapter.

Angels and venture capitalists in the IPO market
Johnson and Sohl
Venture Capital: An International Journal of Entrepreneurial Finance, Vol. 14, No. 1, January 2012, pgs. 27-42.

In this paper we examine angel and venture capital investors and the firms they help to take through initial public offerings (IPOs). Specifically, we examine the distribution of firms by industry and location as a function of angel and venture capital backing. We also consider the ability of the firms to attract high value underwriters based on the presence of angel and venture capital investors. Finally, we compare the post-IPO operating performance of the firms in our sample for backed versus unbacked firms and find a significant difference for venture backed firms, but not for angel backed firms. On the whole, our results suggest that angel investors supply equity to a different subset of firms than venture capital investors.

Mitigating the Limited Scalability of Bootstrapping Through Strategic Alliances to Enhance New Venture Growth
Patel, Fiet and Sohl
International Small Business Journal, Vol. 29, No. 5, 2011, pgs. 421-447.

Although the benefits of bootstrapping are widely known, its decreasing returns to venture growth are less well known.  Decreasing returns to venture growth may result from its limited scalability and increasing costs resulting from reduced legitimacy among stakeholders.  Using a sample of high-technology firms, the study reported in this article tests the non-linear relationship between bootstrapping and venture growth and the moderating effects of alliances on the non-linear relationship.  It finds that bootstrapping has an inverted-U relationship with venture growth, and that alliance diversity enhances the effects of bootstrapping on venture growth and mitigates the negative effects of bootstrapping on venture growth.

The Effect of Gender Diversity on Angel Group Investment
Becker-Blease and Sohl
Entrepreneurship Theory and Practice, Vol. 35, No. 4, 2011, pgs. 709-733.

We examine the impact that gender diversity has on angel group investment behavior for a sample of 183 group-years between 2000 and 2006. Our evidence suggests that gender diversity is a significant predictor of group investment behavior, and that the proportion of women angels in the group has a negative though non-linear effect on investment likelihood. These data are most consistent with a situational interpretation that women invest differently when they are in the small minority compared to other situations. These results have important implications for the availability of funds for women entrepreneurs and call for greater participation of women investors in the angel marketplace.

Do women-owned businesses have equal access to angel capital?
Becker-Blease and Sohl
Journal of Business Venturing, Vol. 22, No. 4, 2007, pgs. 503-521.

Women-owned businesses are the fastest growing sector of new venture ownership in the United States. Although women’s access to, and use of, debt and venture capital financing have been explored, comparatively little is known about women’s access to capital from private equity investors. In this paper, we examine the equality of women’s access to angel capital. The research suggests that women seek angel financing at rates substantially lower than that of men, but have an equal probability of receiving investment. We also document that women are more likely to seek, and to a lesser extent receive, financing from women angels.

Women Business Angels: Insights from Angel Groups
Sohl and Hill
Venture Capital: An International Journal of Entrepreneurial Finance, Vol. 9, No. 3, 2007, pgs. 207-222.

Women have become a significant and growing financial power over the past twenty years and are developing an increasing presence in the angel market.  However, there is a paucity of research on the role of women as angel investors.  Do women angels have a tendency to invest in women entrepreneurs?  What are the underlying incentives and motivations for women to become involved as angel investors?  This survey-based research addresses these questions, and identifies some of the underlying implications of the findings on the current and future role of women as angel investors.

Angel Investing: Changing Strategies During Volatile Times
Sohl
Journal of Entrepreneurial Finance and Business Ventures, Vol. 11, No. 2, 2006, pgs. 27-47.

Changing conditions in the angel market offer a unique opportunity to further knowledge and understanding about angel investing in the US during times of economic volatility.  To identify trends in the angel market, this research examines changes in characteristics and investment behavior during a time of market expansion and contraction (2000 to 2001).  While business angels remain the leading source of seed capital for business ventures, depressed yield rates and increased due diligence indicate that investors are retreating to more fundamental approaches.

The organization of the informal venture capital market
Sohl
Handbook of Research on Venture Capital, Hans Landstrom, ed., Edward Elgar Publishers: UK, October 2007.

In spite of the volume of business angel investing, the early stage equity market is fraught with inefficiencies. For firms with established financial records and tangible assets, financial markets supply an extensive assortment of financing instruments. These markets are relatively accessible and the owner is left to decide the optimum mix of a financial structure based on the cost of capital.  However, the high growth entrepreneurial firm seeking early stage equity capital is faced with significant problems in finding this risk capital due to the inefficiency of the early stage equity market.  Thus, the type of early stage financing required by high growth entrepreneurial firms, namely high risk equity capital, is not readily available.  While variations in the availability of early stage capital exist across countries, and regionally within countries, overall there is a persistent lack of high risk capital for entrepreneurial ventures.  Business angels, who collectively comprise the informal venture capital market, are the major supply of early stage equity capital, and improvements in the efficiency of this market will increase both the size and the accessibility of early stage equity capital.

Business Angels:  Investment Processes, Outcomes and Current Trends
Amatucci and Sohl
Entrepreneurship: The Engine of Growth, Volume II: The Process, A. Zacharakis and S. Spinelli, eds., Praeger Perspectives, Greenwood Publishing Group: CT, November 2006.

The entrepreneurial economy and its contribution to economic growth have been well noted.  High growth entrepreneurial ventures have been the major source of job creation in the United States. These firms also hold the greatest potential for innovation, commercialization of technology and sustainable economic development.  However, entrepreneurial ventures face significant financial hurdles in the early stage of their development.  These high growth ventures lack the assets necessary for collateral based lending and their high growth, and accompanying high risk, results in a reluctance for the banking sector to provide start-up capital.  In addition, start-up firms often do not have the cash flow requirements that accompany debt financing and any cash flow that does exist is needed to fund the growth of the start-up rather than servicing debt.  This inability to attract debt capital in the early stage, and the mismatch between the need for growth capital and the short term financial requirements of debt financing, contributes to the importance of equity financing.  Equity capital supplies the venture with much needed capital for development and expansion, while at the same time typically does not require a repayment until the exit event.  As such, both the entrepreneur and the investor share the risk inherent in the start-up of these ventures.  This critical role of early stage equity financing throughout the history of the entrepreneurial economy has been well documented.

Technolgy centers during the economic downturn: What have we learned?
Gittell and Sohl
Entrepreneurship & Regional Development, Vol. 17, No. 4, 2005, pgs. 293-312.

This paper documents and assesses the economic performance of metropolitan technology centers in the USA during the early 2000s business downturn.  We find that many of the USA’s leading high technology centers have performed at or near the national average, but that some of the nation's most prominent technology centers have fared poorly during the downturn including Silicon Valley.  The main factors that accentuated economic decline in technology centers during the recent recession include: a poorly diversified overall economic base; limited diversity within high technology industries; relatively high (all industry) wages; and high levels of venture capital funding during the end of the ‘boom’ period of the late 1990s. We find that counter to some of the recent literature on regional development and knowledge-based industry clustering and networking, the rules of regional economic development have not changed dramatically with the so-called ‘new economy’.  High technology regions, just as ‘traditional’ industry regions over the past century, are vulnerable to pronounced economic cycles of growth and decline.  The cycles can be particularly pronounced if regional economies are not well diversified and labor costs not moderated during economic downturns.  We also find that venture capital can exaggerate, rather than moderate regional economic cycles, such as from the late 1990s economic growth years in the USA to the recession of 2001.  The model suggests that free flowing venture capital dollars may result in an over reliance on these funds, at the expense of a sound business model with sustainable growth and reasonable cash flow.  Also, business networks associated with venture capital fund flow might be detrimental at critical economic turning points, often resulting in a rush of dollars in a limited business sector, rather than a diversified set of entrepreneurial ventures.

Women entrepreneurs securing business angel financing: tales from the field
Amatucci and Sohl
Venture Capital: An International Journal of Entrepreneurial Finance, Vol. 6, No. 2/3, 2004, pgs. 181-196.

While women led businesses are the fastest growing segment of venture creation in the U.S. economy, the amount of private equity capital investment they receive is disproportionately small.  Informal venture capital, or business angel, investment is as large as venture capital activity, and business angels provide the majority of the critical seed and start-up stage capital.  This research explores the investment decision process involving women entrepreneurs and business angels from the perspective of demand.  Successful strategies of women entrepreneurs are investigated using in-depth interviews.  In particular, pre-investment processes, trust, comprehensiveness, the post-investment relationship, and gender are examined. 

Leveraging Intellectual Property in the Financing of Entrepreneurial Ventures: A Technology-based Solution to the Perfection of Security Interests
Freear, Sohl and Venkatachalam
International Journal of Entrepreneurship and Innovation Management, Vol. 4, No. 2/3, 2004, pgs. 178-193.

The commercialization of innovation is a significant stimulus to economic growth, especially in the entrepreneurial sector of the economy. The supply of funds to bring to market a technically and commercially viable innovation requires an assurance to funding sources that their financial interest in the innovation is secure. This confirmation of a security interest requires both adequate legal protection of intellectual property and patents on which the innovation relies and a rapid and cost-effective search for liens on that intellectual property. The current system (or lack thereof) of lien registration differs from state to state, from manual systems to remotely searchable computer databases. It is expensive and time-consuming to mount a full 50-state search. The recommendation in this paper is that there be a state-managed input of data into a state database that is linked nationally to other state databases, all using compatible technology and protocols. To implement this recommendation, states will need to make an investment in mutually compatible electronically searchable databases. The payoff is a more timely, effective and efficient method of funding innovation based on intellectual property-based innovation, thus stimulating economic growth and job creation. While the paper has the USA as its focus, the recommendations may be extended internationally. The paper argues for the need to increase the availability of, and access to, reliable information about liens on intellectual property assets in the 50 states.

Imperatives for Venture Success: Entrepreneurs Speak
Crane and Sohl
The International Journal of Entrepreneurship and Innovation, May 2004, pgs. 99-106.

This paper reports the findings from a qualitative study involving in-depth interviews with American and Canadian entrepreneurs who had conceptualized and started successful ventures.  Respondents were asked define venture success and then articulate the key imperatives it.  Respondents in this study defined venture success in terms of sales growth and profitability.  The study confirms findings from previous studies, concluding that entrepreneurs' personal characteristics, including determination and commitment, work ethic, optimism, energy and fearlessness, are very important to venture success.    Imperatives involving specific business activities and practices, including having the right idea/opportunity, the right management team, sharing rewards, and business planning, again, consistent with the literature, were confirmed as being important.  However, three key imperatives rarely, if ever, cited in previous literature - focusing on the core business, staying close to the market, and delivering customer satisfaction - were also articulated by the respondents.

Angel Investing: A Market Perspective
Sohl
In J. May and E. O'Halloran (eds) State of the Art: An Executive Briefing on Cutting-Edge Practices in American Angel Investing, (VA:Darden Business Publishing), 2003, pgs. 2-14.

The humble beginnings of the angel market provided the motivation for research on the early stage equity financing of entrepreneurial ventures.  The seminal work on the study of business angels was conducted by William Wetzel and is acknowledged as the first research to establish the existence and role of private investors.  Later studies conducted by Freear, Sohl and Wetzel expanded on this beginning through the establishment of the complimentary role of business angels and venture capitalists and the characteristics of the latent angel population.  Spurred on by these early works, the research activity has progressed in the last decade to a reasonable body of literature that follows the underlying tenant of applying academic rigor to an applied area of study.  However, while much has been accomplished, much remains to be learned.  The angel market is in constant flux, and the recent volatility of the private equity market has only provided additional motivation to understand the role of these critical early stage investors.

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The US Angel and Venture Capital Market: Recent Trends and Developments.
Sohl
Journal of Private Equity, Vol. 6, No. 2, 2003, pgs. 7-17.

It has been the best of times, it has been the worst of times - a time of opportunity and a time of contraction.  In ten years the total investments of the venture capital industry increased by 8 times and the number of venture capital funds increased threefold.  Total private equity investments from business angels increased substantially during the period, surpassing those of their venture capital counterparts.  In ten years an entire industry sector was spawned, with revenues topping $9 billion.   The venture capital industry invested close to $400 million in 43 ventures in one hot sector and in two years $270 million was invested in 51 rounds of financing.  During this same two year period 21 initial and secondary public offering of stock by 12 companies raised over $800 million.  Price/earnings ratios exceeded 50 and the market capitalization for this one sector was over $5 billion.  The decade has been touted as an age of technological entrepreneurship by leading academics and the business press.

The private equity market in the USA: lessons from volatility.
Sohl
Venture Capital: An International Journal of Entrepreneurial Finance, forthcoming, Vol. 5, No. 1, 2003, pgs. 29-46.

Since the nadir of the early nineties the angel and venture capital markets began a rapid recovery followed by a marked decline.  These recent market gyrations offer insights into the private equity industry.  During the rise angel and venture capital investments soared, accompanied by rising deal valuations.  For the first time since the study of angels was initiated, venture capital investments exceed, in total dollars, the amount of angel investments, although the number of deals remained larger in the angel market.  However, unsustainable trends inevitably return to normalcy and the restructuring has resulted in the needed culling of the forest.   Angels are reasserting their fundamental role as the major source of seed capital for high growth entrepreneurial ventures.  This paper examines the rise and the downturn in the private equity market, and identifies some of the causes for each.  Current and future market trends are also identified.

Angles on Angels: Financing Technology-Based Ventures - An Historical Perspective.
Sohl, Freear and Wetzel
Venture Capital: An International Journal of Entrepreneurial Finance, Vol. 4, No. 4, 2002, pgs. 275-287.

Why is research into the financing of entrepreneurial technology-based ventures so important?  We believe that there are three compelling reasons.  First, the technology-based entrepreneurs and venture investors of the United States constitute a vital competitive edge in world markets.  Second, private investors (business angels) are the primary source of equity financing for start-up and early-stage entrepreneurial technology-based ventures.  Third, the capital and the know-how of self-made high net worth individuals are two of the least understood and largely underutilized economic resources in the United States and, indeed, in other countries.

The Private Equity Market Gyrations: What has been Learned?
Sohl
Venture Capital: An International Journal of Entrepreneurial Finance, Vol. 4, No. 4, 2002, pgs. 267-274.

The early stage equity market has experienced much volatility in recent years.  While these unsettled market conditions have presented vicissitudes for many, it has also presented a wealth of opportunities for researchers and seasoned investors.  This paper outlines some of the issues raised during the angel market swings in recent years.  Some contributing factors to both the rise, and the retrenching, in the private equity market are presented.  The foundations and trends for the future development of the angel investment market are also examined.

Angel Investment Activity: Bracing for the Downdraft
Sohl and Sommer
Frontiers of Entrepreneurship Research, 2002.

A survey analysis was conducted on angel investment groups throughout the United States.  Current market conditions were compared to the past expansionary period.  Data collected included: group performance; operating methods; sector preferences; member participation; matching methods; screening mechanisms; investment sizes; investment yields; and investor profiles, preferences and performance.  Along with significant increases in investor memberships, angel groups are presenting investors more proposals.  However, angels are investing in fewer ventures, thereby, resulting in a significant drop in investment yields.  Investors appear to be more cautiously selecting investments.  Investment levels recorded in 2001 appear to be similar to those recorded before the expansion.  Additionally, women market participation is on the rise, but yield rates are lower for women-led proposals.

Technology Centers During the Economic Downturn: What have we Learnt?
Sohl and Gittell
Frontiers of Entrepreneurship Research, 2002.

This paper documents and assesses the experience in technology centers in the United States during the 2000-01 economic downturn.  It addresses whether the prediction made during the period of strong growth of continuous virtuous cycles in technology centers held true.  We find that some of the nation's most prominent high technology centers have fared poorly during the 2000-01 downturn, including Silicon Valley.  The main factors that dampened economic decline include: a diversified economic base with strength in services; low dependence on manufacturing; and growth during the boom period in employment in non-high technology industries.  In contrast, high venture capital flow during the late stages of the period of economic growth contributed to economic decline during the downturn.  The analysis is preliminary and exploratory, suggesting areas for future inquiry.   

Current Trends in the Private Equity Financing of High Tech Ventures: An Analysis of Deal Structure.
Sohl and Areson-Perkins
Frontiers of Entrepreneurship Research, 2001.

High tech ventures often participate in several rounds of equity financing, from rounds with private investors to those with institutional venture capital. These rounds of financing differ along several dimensions, including the source of the equity capital, the terms and conditions of the deal and the type of equity received by the investors. Holding periods, expected returns and valuations also vary across rounds. In an attempt to provide an understanding of these dimensions this research undertakes a longitudinal analysis of equity financing across several rounds and sources of equity financing. The major research issues addressed include the source dependency of the round characteristics and the changes in these dimensions across rounds with respect to growth rates and valuations.

The Characteristics and Value-Added Contributions of Private Investors to Entrepreneurial Software Ventures.
Sohl and Freear
Journal of Entrepreneurial Finance; 2001, Volume 6, Number 1, Pgs. 84-103.

The nature and role of early stage equity financing in the development of emerging entrepreneurial ventures in the software industry is examined. To provide an understanding of the relationship between the suppliers of capital and the ventures they bankroll, issues concerning equity positions and holding periods are addressed. Given the unique position of private investors in the early stage equity market, particular attention is given to the characteristics of these investors and the investor characteristics germane to the software industry. Results for the software sector are compared with technology-based companies in an attempt to uncover any discernable differences between the two groups. The research hypothesizes that there are differences in the informal venture capital market among broadly defined sectors in terms of the sectors' technology and competitive conditions and their impact on: first, the need for, and timing of, external equity capital; and secondly, the characteristics and value-added contributions of the private investors attracted to the sector.

Models of Angel Investing: Portals to The Early Stage Market.
Sohl, Van Osnabrugge, and Robinson
Frontiers of Entrepreneurship Research, 2000.

Within the informal venture capital market, several dimensions have been emerging. These dimensions, collectively forming the informal venture capital market, can be characterized by portals through which angels enter and participate in the early stage market. A portal may best be categorized by the predominant mechanism for bringing together entrepreneurs seeking capital and business angels searching for investment opportunities. To provide information on these portals and examine member investor characteristics, a survey based approach is undertaken. Data collected include the method of operation, successful matches, investor profiles, screening mechanisms and stage preferences. Additional data concerns the types of angel deals being conducted through these organizations. Since these portals have a good pulse on the health of the larger business angel market, information on angel characteristics, deal size funding sought by entrepreneurs, success rates and angel preferences was also complied.

The early stage equity market in the United States.
Sohl
Venture Capital: An International Journal of Entrepreneurial Finance; 1999, Volume 1, Number 2, Pgs. 101-120.

As recently as twenty years ago the U.S. began a transformation from a declining industrial and manufacturing economy to an emerging entrepreneurial/innovation-driven economy. With this transition, the early stage equity market has also evolved. As the institutional venture capital industry continues to focus on later stage and larger investments, the private investor market now provides the major source of seed and start-up capital. However, imperfections in the seed and start-up market have led to market inefficiencies for the high-growth firm. Two funding gaps appear to exist in the U.S. equity market, both largely as a result of these market inefficiencies. This paper provides a broad overview of the early stage equity market for high growth ventures in the U.S. In light of the critical role of business angels in the early stage market, special attention will be given to this population. Also included is a discussion of angel markets and recent trends in the early stage financing of entrepreneurial ventures.

Habitual Entrepreneurs and Angel Investors.
Sohl, Westhead, and Wright
Entrepreneurship Theory and Practice; 1998, Volume 22, Number 4, Pgs. 5-21.

The aim of this Special Issue is to provide at least a step towards filling the gap in our knowledge and to encourage more research to be conducted surrounding the characteristics and contributions made by habitual entrepreneurs and angels. The purpose of this Editors' Introduction is to set the papers presented in this Special Issue in the context of the principal issues which need to be addressed. This Introduction begins by defining habitual entrepreneurs and angels and is followed by a typology of these individuals. The main body of the paper then reviews the available evidence on the principal issues relating to habitual entrepreneurship; the scale of the habitual entrepreneurship phenomenon; the personal backgrounds of habitual entrepreneurs; issues relating to how habitual entrepreneurs put projects or deals together; and the performance of businesses owned by novice, portfolio, and serial entrepreneurs. Based on this discussion, the problems with the previous studies which have focused upon habitual entrepreneurs and angels are then outlined. The paper concludes with some directions for funded research.

The Influence of Sector on the Early Stage Financing of High-tech Entrepreneurs.
Freear, Grinde, and Sohl
Frontiers of Entrepreneurship Research, 1998.

An earlier paper extended the work done some seven years previously on the financing of high-technology ventures. This paper looks in more detail at the break down amongst various sectors of high technology. It introduces some background sales and growth data from the CorpTech database on the responding ventures. The study found differences and similarities among the sectors, in terms of financing sources, amounts, and stages, growth rates, reliance on outside equity capital, relationships with investors, return expectations, holding periods, and exit strategies.

The early stage financing of high-tech entrepreneurs.
Freear, Grinde and Sohl
Draft version, 1998.

In 1996, a survey was mailed to the CEO's of 1,701 high-growth, technology-based ventures. Two hundred and forty-five surveys were returned, a response rate of 14.4 per cent. The survey asked questions about the amount, stage and source of financing rounds, and about the investors involved in the earliest outside equity financing round of $50,000 or more. Private investors were a relatively significant source at the seed stage, but their relative importance diminished as the dollar size of the financing round grew and the financing stage passed from seed through start-up to early and to late stage. Venture capital funds were a significant source at all stages except for the seed stage. The survey results provided additional evidence to support the view that private investors invest early, in smaller dollar amounts, and in ventures within a day's travel.

The informal venture capital market: Milestones passed and the road ahead.
Freear, Sohl and Wetzel
Chapter 3 of Entrepreneurship 2000, edited by Sexton and Smilor, Upstart Publishing Company, Chicago, IL, 1997.

Since the 1990 State of the Art in Entrepreneurship Research Conference, the informal venture capital market has attracted substantial attention. The reasons are not hard to find. The United States and the major global economies are in the process of mutating from industrial/manufacturing economies to entrepreneurial economies driven by information and accelerating technological change. In the United States, from 1979 to 1995, while Fortune 500 payrolls declined by over 4 million jobs, the entrepreneurial economy generated over 24 million jobs. About 75 percent of these jobs were created by fewer than 10 percent of small firms. Job-generating businesses are started and driven by entrepreneurs. For entrepreneurs, size is a transient characteristic. Innovation, risk, growth, and the creation of wealth for entrepreneurs and investors distinguish entrepreneurial ventures from other small businesses. One economist observed that our country's ace in the hole is our ability to spawn a lot of high-growth entrepreneurial ventures.

Investing in neighborhood entrepreneurs: Private foundations as community development venture capitalists.
Gittell, Sohl and Thompson
Entrepreneurial and Small Business Finance: 1996, Volume 5, Number 2, Pgs. 175-191.

Entrepreneurs in low-income and minority neighborhoods encounter numerous problems in securing capital. To address this capital gap this paper considers a new role for private foundations as community development venture capitalists (CDVCs). It is suggested that through grant making and program-related investments, foundations may assume an equity stake in neighborhood-based entrepreneurs and acting as CDVCs apply lessons from the value-added component of private equity financing, including drawing on their expertise, professional contacts and financial resources to contribute to entrepreneurial efforts in the inner city.

Angels: Personal investors in the venture capital market.
Freear, Sohl and Wetzel
Entrepreneurship & Regional Development: 1995, Volume 7, Pgs. 85-94.

The role of private investors in the equity financing of new technology-based ventures is examined. The research studies the venture capital market from a demand and supply perspective and delineates the role of the private investor with that of the more visible venture capital funds. The entrepreneur's perceptions of raising venture capital are also examined. The research suggests that the private investor is the most common source of seed and start-up financing, especially if the round of financing is less than US$500,000. While private investors are harder to find than their venture capital fund counterparts, it appears to take less time to close a deal with private investors and the financing is less expensive than financing from venture capital funds. Both private investors and venture capital funds add value to their investments through the establishment of working relationships with the ventures they finance, and entrepreneurs perceive these working relationships to be a productive component of the deal.

Innovation, technology and the information revolution creating new capital markets for emerging ventures.
Prepared by the Center for Venture Research for the SEC Government Business Forum on Small Business Capital Formation, Providence, RI, September 1995.
Access to "patient capital" emerged from the White House Conference on Small Business as the most critical obstacle to the vitality of emerging technology-based ventures. The need was defined more precisely as seed and start-up capital on the order of $250,000 to $1,000,000, well below the interest thresholds of most venture capital funds, but well within the range of typical private equity investor financing.

The Office of Advocacy of the U.S. Small Business Administration, working with the U.S. Securities and Exchange Commission, is undertaking a substantive effort to develop a new capital market.
Economic policy in an entrepreneurial world: Seven treacherous misconceptions and half-truths.

William E. Wetzel, Jr
Venture Capital Journal: August 1995.

Nowhere are the differences in the political agendas of fast-track companies and small businesses more vivid than in the area of capital formation. Whether the goal is job creation, deficit reduction or U.S. competitiveness in world markets, our country's capital formation challenge is not adequate credit for small business, but adequate high risk, patient, value-added equity capital for entrepreneurs.

The private investor market for venture capital.
Freear, Sohl and Wetzel
The Financier ACMT: May 1994, Volume 1, Number 2, Pgs. 7-15.

There are two primary sources of external equity capital for entrepreneurs, one visible and one invisible. The visible venture capital market is composed of professional venture capital funds. The invisible market consists of a diverse and dispersed population of high net worth individuals interested in investing equity capital in entrepreneurial ventures. The focus of this paper is on the individual investor (business angel) market for venture capital. The efficiency of this informal investor market is studied and predominant sources of investment opportunities are identified. Methods for facilitating the flow of information to increase the efficiency of the market are examined, and active investor profiles are outlined.

Superfund's impact on small firms' investment decisions.
Sohl and Wetzel
Balancing Economic Growth and Environmental Goals, Monograph Series on Tax and Environment Policies and U.S. Economic Growth, Center for Policy Research, American Council for Capital Formation, Washington, D.C., May 1994, Pgs. 93-115.

Small firms have been an important source of jobs and entrepreneurial activity for the U.S. economy since the late 1970s. This study breaks new ground by surveying a group of small-firm potentially responsible parties (PRPs) to assess the impact of Superfund liability on small firms' ability to raise capital, invest in plant and equipment, and create jobs.

Superfund's site-by-site fund-raising mechanism relies on strict, retroactive, joint and several liability. This liability standard means that PRPs are liable for waste disposal that took place before the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), or "Superfund", was passed, and may have been lawful at the time. Liability is not limited to a PRP's "fair share" of costs based on its wastes. Each PRP may be held liable for the entire cost of cleanup. Superfund liability can have a major impact on a firm's cash flow and financial health because remedial costs average $25 to $30 million per site.

Small firms and superfund: Assessing the impact.
Sohl and Wetzel
Journal of Small Business Finance: 1994, Volume 3, Number 2, Pgs. 141-157.

While all firms experience varying degrees of difficulty in complying with environmental regulations, small firms have their own set of special problems in dealing with environmental compliance. The lack of legal and engineering staffs, the management structure, and a high cost per unit of production to comply with environmental regulations implies a diversion of a small firm's limited resources to formulating a cost effective response to the rapidly changing landscape of environmental regulations. The cornerstone of the shifting focus towards hazardous waste regulations, in terms of both actual and potential impacts, is the Comprehensive Environmental Response, Compensation, and Liability Act, commonly referred to as Superfund. Given the unique liability features of Superfund, the objective of this research is to assess the impact of Superfund liability on the ability of small firms to raise capital, invest in plant and equipment, and to continue their role as the principal job generating segment of the U.S. economy.

Angels and non-angels: Are there differences?
Freear, Sohl and Wetzel
Journal of Business Venturing: 1994, Volume 9, Pgs. 109-123.

The market for informal venture capital is an elusive and nearly invisible source of financing for entrepreneurial ventures. This market consists of a diverse set of high net worth individuals (business angels) who invest a portion of their assets in high-risk, high-return entrepreneurial ventures. The emerging consensus of the characteristics of the individual investor is that of a well-educated, middle-aged individual with considerable business experience and a substantial net worth. These informal investors appear to prefer investing in the early start-up stage of the venture and, if given a choice, prefer that their investments be located close to home. One consequence of this consensus is the tendency to assume that the traits of these business angels are as tightly clustered around the norm as are the traits of venture capital funds. They are not. In terms of their competence in the many areas of venture investing, these individual investors range from the successful, cashed-out entrepreneur on the one hand to individuals with little or no experience with venture investing on the other. At the same time, little is known about the characteristics of high net worth individuals who never ventured where angels dare to tread, or about these non-angels' propensity to join the fold. Thus this study seeks to fill the void by examining the characteristics of high net worth individuals regardless of their investment history or their interests in venture investing.

Angel profiles: A longitudinal study.
Freear, Sohl and Wetzel
Frontiers of Entrepreneurship Research, 1993.

The study focuses on the pattern of investment interests, post-investment relationships and investment activity of private investors in a dynamic environment. VCN's longitudinal data offer the opportunity to observe what changes have occurred in the private investor market during a period that included strong economic growth (1985-88) and recession (1989-92). By the late 1980s, professional venture capital funds had virtually ceased to offer seed and start-up financing to entrepreneurial ventures.

The investment attitudes, behaviors and characteristics of high net worth individuals.
Freear, Sohl and Wetzel
Frontiers of Entrepreneurship Research, 1992.

A random sample of high net worth individuals was used to collect comprehensive data from investors and non-investors in entrepreneurial ventures. This paper is limited to a discussion of the yield of investment referral sources, the significance investors attach to venture location and trends in their investment activity. For non-investors we discuss their interest in venture financing and the incentives that would induce them to become investors. Local networks of friends and business associates, as opposed to "gatekeepers", are the most productive source of opportunities. Investors are inclined to expand, rather than contract, the geographic scope of their portfolios. The rate of venture investing fell by about 50% from 1987 through 1991.

Who bankrolls high-tech entrepreneurs?
Freear and Wetzel
Journal of Business Venturing: 1990, Volume 5, Pgs. 77-89.

Where do new technology-based firms (NTBFs) raise outside equity capital? To answer that question, financial histories were collected from 284 technology-based firms founded in New England between 1975 and 1986. Financial histories included the year of each round of financing, the source, the amount, and the stage of the financing.

The most significant outcome of this research is the conclusion that private individuals and venture capital funds play complementary rather than competing roles in the financing of NTBFs. This complementary relationship has two dimensions - size and stage. At all stages venture capital funds tend to invest substantially more dollars per round than do private individuals. Second, compared to venture capital funds, individual investors exhibit a significantly higher propensity to invest at the seed and start-up stages. Individual investors appear to have longer exit horizons and less risk aversion than venture capital funds. Individual investors provided the seed capital that launched the majority of NTBFs in the sample. In addition to their descriptive interest, the data contain useful prescriptive implications for technology-based entrepreneurs raising outside equity capital.