Innovationsbron and Business Incubators in Sweden

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Critique to Angel Investors

It would seem natural that angel investors would be competitors to the venture capitalists, but it is the other way around. Common critique to angel investors concern the personalities of the entrepreneur and the business angel, because of the active participation of the investor it is very important that the cooperation and communication is flawless (Garmer & Kyllenius, 2004).
Another critique to Business Angels is the type of angels that have never been in a deal before and get cold feet before the deal goes through. They like the feeling of calling themselves a business angel, but do not have the courage or attitude towards risk to go all the way, the go under the definition virgin angel, and are nothing but time-consuming for the entrepreneur. Furthermore, since business angels are individual investors and use private capital, the resources are limited and it might also be uncertainty in bad times. The angel might also have different intentions for the investment (Hobbes, 2003).

 Corporate Investors

Corporate investors are much like venture capital, they consist of companies and other institutions that use its own shareholder equity to make investments, and the intentions can be both financial and / or strategic. This kind of investing is hard to measure since it is done in various ways. For example, many corporations invest informally or ad hoc in entrepreneurial ventures, other ways are made through acquisitions or strategic alliances. When considering capital from a corporate investor it is important to know about their goals with the investment is (Hobbes, 2003).
For the entrepreneur the corporate investor can be interesting when there is a substitute product, maybe the entrepreneur needs a strategic partner. The size of the investment varies depending on the involvement and objectives. Before investing there is a complicated valuation of the firm and the contract is developed under complex and strategic conditions. When exit the investment the strategic intentions are prioritized before the others (Smith & Smith, 2004).

Critique to Corporate Investors

When getting outside capital from a corporate investor it is common to realize conflicts in targets and other interests. Another drawback with the combination is the structural problems when it comes to mission about the investment and the commitment. Also, it might be hard to decide upon the risk compensation as well as profit sharing (Hobbes, 2003).
However, comparing the corporate investors (as well as venture capitalists) to the business angels, they are far more complex and more time-consuming to deal with, they also require more detailed market research before deciding upon investing, while the business angels are more interested in the entrepreneur and potential market (Hobbes, 2003).

Summary of External Equity

Furthermore, Cosh et al. (2005) also made a matchmaking analysis of their research and found that some external equity finance sources fit better with some companies than others. Investors for profitable firms are more likely to be working shareholders and partners. Also, there are similar features among the firms that choose to seek external equity, which are strong potential growth firms and high profits (Cosh et al., 2005).
All of these sources of external capital are in exchange for some part of the company, and according to Garmer & Kyllenius (2004) should be avoided as long as possible, however, for many companies it is inevitable. However, there is no chronologic hierarchy of the external sources, apart from the pecking-order theory. It is on the other hand interplay between supply and demand, new opportunities, personal chemistry, and of course a little bit of luck (Garmer & Kyllenius, 2004). Furthermore, firms with fewer tangible assets also have the tendency of being financed under less formal conditions (Cassar, 2002).
When having received external equity, such as venture capital or business angel support, it is also easier to get offers of debt, mostly because the equity ownership lowers the risk of the firm. The lower risk of the firm is a result of many parties sharing the total risk as well as having others than the entrepreneur believe in the business (Cressy, 2002).
What source of capital the entrepreneur ends up having is much depending on in which stage of maturity the company is. A company that is not yet started has usually difficulties getting bank loans, though it might be more appropriate to make deals with suppliers or business angels. However, once the company is started some debt financing might be possible, usually loans from government institutions (Garmer & Kyllenius, 2004).

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1 Introduction 
1.1 Background
1.2 Innovationsbron and Business Incubators in Sweden
1.3 Problem Discussion
1.4 Research Questions
1.5 Purpose .
1.6 Delimitations
1.7 Who we are Writing For
1.8 Definitions
1.9 Disposition
2 Theoretical Framework 
2.1 Defining Entrepreneurial Finance
2.2 Business Incubator
2.2.1 Business Incubator Operations .
2.2.2 Different Types of Business Incubators
2.3 The Financial Gap for Start-ups
2.4 Entrepreneur-Investor Relationship
2.4.1 Entrepreneurs’ Financing Preferences .
2.4.2 Information Symmetries and Conflicting Incentives .
2.4.2.1 Adverse Selection .
2.4.2.2 Moral Hazard .
2.4.2.3 Agency Theory
2.5 Two Approaches of Attracting External Capita
2.6 Sources of External Equity .
2.6.1 Venture Capital Funds .
2.6.2 Critique to Venture Capita
2.6.3 Angel Investors
2.6.4 Critique to Angel Investors
2.6.5 Corporate Investors .
2.6.6 Critique to Corporate Investors .
2.6.7 Summary of External Equity
2.7 Financial Life Cycle
2.8 Previous Research
3 Methodology
3.1 Research Design
3.1.1 Deductive Approach
3.1.2 Qualitative- and Quantitative Data .
3.2 Data Collection
3.3 Data Analysis
3.4 Data Quality
4 Empirical Findings.
4.1 Entrepreneurial Characteristics .7
4.2 Entrepreneurs Attitudes Towards External Equity
4.3 Business Incubators as Equity Attractors
4.4 Business Incubators as Mentors to Entrepreneurs .
4.5 The Strive for Economic Development and Growth
4.6 The Entrepreneurial Gain in Business Incubators
4.7 The Business Angel’s Passion for Entrepreneurship
4.8 Equity Investors Attract Investor
4.9 All Equity is Not for Everyone
4.10 Business Angels’ Perception of Business Incubators
5 Analysis
5.1 The Availability of Equity Financing
5.2 The Attractiveness of Equity Financing .
5.3 Business Incubator as Mediators ..
5.4 From Localization Towards Expertise-Oriented .
5.5 Aim for Commercialization and Economic Welfare .
6 Conclusio
7 Further studies
References

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The Eternal Triangle for External Equity Financing

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