The project took a demand-side approach to investigating the informal private equity capital market for technology-intensive start-ups in Germany. Particular attention was paid to the role of so-called Business Angels in financing such companies. Business Angels are private individuals who use their own resources to invest directly in a company and, alongside the capital investment, who contribute their business expertise, contact networks etc. The data on which the study was based come from the 2007 survey of the ZEW High-Tech Foundation Panel.

The project can be subdivided thematically into four blocks.

I. Quantitative Importance of Business Angels’ Investments in High-Tech Start-Ups
In the first thematic block, the proportion of high-tech start-ups in the sample that have received funding from Business Angels was determined. A projected figure for all foundations in the high-tech segment was then calculated, enabling us to estimate how common this form of financing is among young, technology-intensive firms. This showed that Business Angels had bought ownership shares in 5% of the young, technology-intensive firms founded between 2001 and 2005. There was hardly any difference between the individual industries in the high-tech sector (superior technology industries including information technology, high technology industries, software, technology-intensive services). According to the research, Business Angels are the most important source of equity capital financing for young high-tech firms, with venture capital companies providing finance to a comparatively small 2% of firms.

II. Characterisation of Business Angels’ Non-Financial Contributions
The second thematic block analysed the form of support that Business Angels bring in addition to their financial contribution and how important this is for the company. In 80% of cases, the Business Angel takes an active role in business operations, for example by working at the business. Business Angels generally also support the companies in their portfolios by offering supervision and consulting, as well as by putting founders in touch with potential business partners. In this case, Business Angels mainly provide their services to the commercial side of the business. Representatives of the businesses gave an overwhelmingly positive assessment of the different forms of support provided by Business Angels. This means that, as far as the founders are concerned, the support provided by Business Angels genuinely adds value to their business.

III. The Beginning of a Business Angel’s Involvement
The research conducted in this part of the project aimed to paint a picture of how contact is typically established between high-tech companies and Business Angels. As the study has shown, most firms found their Business Angels through private contacts, a category which included business partners. Institutionalised means of contact, such as business-angel networks, business incubators, business plan competitions or other competitions for founders, play a relatively minor role compared to private contacts.

IV. Why Do Business Angel Investments Not Come About?
The final thematic block investigated reasons why Business Angel investments do not come about. It was only possible to look into the reasons on the side of those seeking capital, i.e. the businesses. The two most important reasons found why a (potential) private investor did not buy into a business were disagreement about the amount to be invested and the fact that businesses did not need additional capital, because they received adequate financing from other sources. At the same time, three-quarters of the high-tech start-ups had no contact with potential private investors at all. The most commonly cited reason for this absence of contact was also that the businesses did not need additional capital. However, many high-tech businesses were also not prepared to give outside investors the right to participate in business decisions and therefore made no effort to contact a private investor.

Selected Publications


Fryges, Helmut, Sandra Gottschalk, Georg Licht and Kathrin Schopen (2007), Hightech-Gründungen und Business Angels, Bundesministeriums für Wirtschaft und Technologie (BMWi), Mannheim. Download