Who Becomes a Business Angel?

Abstract

Using data from Swedish administrative registries, we identify business angels, i.e. individuals repeatedly financing start-ups, and characterize who among the general population eventually becomes a business angel. Angels are overwhelmingly drawn from the top 1% of the wealth distribution and are just as likely as other rich people to originate from wealthy families, yet, angels have distinguishing characteristics compared to the rich in general. Their asset allocation is strongly biased towards the riskiest assets, suggesting unusually low levels of risk aversion. Angels also have higher general ability (as measured using cognitive and non-cognitive ability scores from military enlistment tests and college admission tests), are more likely to be university graduates, and choose more business-relevant degrees (such as business studies, law, and engineering). In addition, a majority of angels have prior work experience in start-ups, typically as executives. Angels making the most successful investments and those making the least successful one are further apart from the rest of the rich population than from each other's group. Our analysis provides important insights for the design of policies encouraging the financing of early-stage ventures.