Navigating Through Networks: Social Capital and Agency Theory in Business Angels' Investment Processes
(2025) ENTN19 20251Department of Business Administration
- Abstract
- This study explores how business angels in southern Sweden use social connections and trust to find and assess potential investments. Business angels often rely on their network for finding investment opportunities, and the process can vary from one cultural context to another. Most existing research on the business angels’ investment process lacks a focus on the relational and informal mechanisms in the process. This study aims to understand the balance between formal and informal mechanisms that business angels and entrepreneurs go through during the investment process, from opportunity discovery to screening and due diligence. Based on 11 in-depth interviews, our inductive analysis developed a four-level framework. The Relational Level... (More)
- This study explores how business angels in southern Sweden use social connections and trust to find and assess potential investments. Business angels often rely on their network for finding investment opportunities, and the process can vary from one cultural context to another. Most existing research on the business angels’ investment process lacks a focus on the relational and informal mechanisms in the process. This study aims to understand the balance between formal and informal mechanisms that business angels and entrepreneurs go through during the investment process, from opportunity discovery to screening and due diligence. Based on 11 in-depth interviews, our inductive analysis developed a four-level framework. The Relational Level shows how trust, referrals, personal connections, and reputation help quickly identify credible ventures. The Cognitive Level reveals how shared understanding of industry, values, and founder fit acts as a screening tool. The Structural Level highlights how angels use both strong and weak ties for informal due diligence and market validation, reducing information gaps through peer confirmation. The study also views investment decisions as a continuous process of information evaluation and intuition, blending analytical rigour with experience. Theoretically, these findings expand Social Capital Theory by detailing network mechanisms and Agency Theory by showing how informal governance supplements formal controls in uncertain situations. Ultimately, this research offers insights into cultivating networks and balancing due diligence with intuition to improve investment outcomes and entrepreneur compatibility, shedding light on the intricate mix of formal and informal processes in angel investing. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9210491
- author
- Martin, Irina LU and Chen, Mei-Yu LU
- supervisor
- organization
- course
- ENTN19 20251
- year
- 2025
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Business Angels, Social Capital Theory, Agency Theory, Early-stage Investments, Decision Making, Trust
- language
- English
- id
- 9210491
- date added to LUP
- 2025-08-25 16:14:42
- date last changed
- 2025-08-25 16:14:42
@misc{9210491,
abstract = {{This study explores how business angels in southern Sweden use social connections and trust to find and assess potential investments. Business angels often rely on their network for finding investment opportunities, and the process can vary from one cultural context to another. Most existing research on the business angels’ investment process lacks a focus on the relational and informal mechanisms in the process. This study aims to understand the balance between formal and informal mechanisms that business angels and entrepreneurs go through during the investment process, from opportunity discovery to screening and due diligence. Based on 11 in-depth interviews, our inductive analysis developed a four-level framework. The Relational Level shows how trust, referrals, personal connections, and reputation help quickly identify credible ventures. The Cognitive Level reveals how shared understanding of industry, values, and founder fit acts as a screening tool. The Structural Level highlights how angels use both strong and weak ties for informal due diligence and market validation, reducing information gaps through peer confirmation. The study also views investment decisions as a continuous process of information evaluation and intuition, blending analytical rigour with experience. Theoretically, these findings expand Social Capital Theory by detailing network mechanisms and Agency Theory by showing how informal governance supplements formal controls in uncertain situations. Ultimately, this research offers insights into cultivating networks and balancing due diligence with intuition to improve investment outcomes and entrepreneur compatibility, shedding light on the intricate mix of formal and informal processes in angel investing.}},
author = {{Martin, Irina and Chen, Mei-Yu}},
language = {{eng}},
note = {{Student Paper}},
title = {{Navigating Through Networks: Social Capital and Agency Theory in Business Angels' Investment Processes}},
year = {{2025}},
}