Dutch Internet start-ups: The impact of the founding
entrepreneur’s human capital on acquiring angel financing
in their early stages. A qualitative study
Name:
Vlad-Cristian Marin
Student number:
10418164
Study program:
BSc Economics & Business
Course:
Bachelor’s Thesis (6013B0347Y)
Supervision:
Willem Dorresteijn
Amsterdam, the Netherlands
25
thof June 2016
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Statement of Originality
This document is written by Vlad-Cristian Marin who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the
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Abstract
Financing for start-ups is crucial, but what drives external investors to award young ventures funds is an unchartered territory. This study investigates whether Dutch Internet entrepreneurs follow a pattern in terms of human capital components when they seek angel investments. I hypothesize that entrepreneurs with higher management experience and higher academic status are more likely to attract investors, while their technological expertise does not have any effects on angels’ decisions. At the same time, I am seeking to find other aspects of human capital that might drive investments. The study is undertaken in a qualitative fashion, through
semi-structured interviews and involves five Dutch Internet start-ups across various industries and two angel investors. The results dismiss two of the theoretical propositions, but confirm the fact that technological expertise does not affect obtaining angel investments.
3 Table of Contents Statement of originality 1 Abstract 2 Foreword 4 1. Introduction 5
2. Literature review and Theoretical framework 7
Internet start-up 7 Human capital 7 Angel investors 8 P1. Management experience 12 P2. Technological expertise 13 P3. Academic status 14 3. Methodology 14
Sample – case by case 17
4. Results 19
4.1 Management experience 19
4.2 Technological expertise 21
4.3 Academic status 23
4.4 Feedback from investors 24
4.5 Non-business professional angel investors 25
5. Discussion 26
5.1 Discussion points 26
5.2 Strengths, Limitations and Contribution to Research 29
5.3 Implications for Practice 30
6. Concluding thoughts 31
Bibliography 32
Appendix A 34
4 Foreword
This research has offered me the means to understand the real portrait of the Dutch start-up environment, has given me the opportunity to connect with entrepreneurs and ultimately helped me prepare for my future entrepreneurship-related endeavors. I would like to take this chance to thank my supervisor, Mr. Willem Dorresteijn, for his support and guidance throughout the process and last, but not least, to my friends, family and all those that made this research possible - from moral support to granting me access to companies and beyond.
5 1. Introduction
Undoubtedly, the Internet was one of the biggest breakthroughs in the world’s history, while it has been shaping society as we know it on a daily basis. Apart from individuals, businesses are the biggest users of Internet, creating room for innovation on all levels: from a management, a technology and even a social perspective. Recent years have seen a boom in terms of Internet and technology-based start-ups and companies and their management have fast embraced the great number of newly born opportunities. Thousands of businesses open up worldwide every day and the Netherlands makes no exception. In fact, as seen in a recent study by
Pricewaterhouse Coopers(PwC, 2015), the Netherlands ranks 5th worldwide on the innovation index.
What makes the Netherlands particularly interesting is the overall health of the start-up ecosystem. From a start-up policy adoption point of view, the Netherlands was ranked first overall by the European Digital Forum for already complying with 85% of the 72 action points set out in the so-called Start-up Manifesto. The manifesto is a framework designed by leading European entrepreneurs to monitor what is being done to foster entrepreneurship and innovation, who is doing the most and who needs to do more (European Digital Forum, 2016). According to a curated list assembled by StartupJuncture.com, in 2014 alone the Dutch start-up scene had deals amounting over EUR 500 million. Supporting the status quo, the appointment of the ex-European Commissioner, Neelie Kroes, as Special Envoy for start-ups in 2014 sends out a clear message: the Netherlands is striving to become Europe’s biggest innovation hub and one of the best places to open up businesses. Her mission is to strengthen the international position of start-ups in the Netherlands and to persuade innovative foreign start-start-ups to establish their businesses there.
The Netherlands benefits from a powerful and healthy entrepreneurial ecosystem, with friendly policies and reforms aimed at aiding new businesses thrive, while the country is
attractive for various categories of investments. However, what are the drivers of this successful mechanism? A general model has yet to be shaped and, in general, extant literature mainly focuses on aspects related to strategies, social capital, regulatory systems and so forth, especially in the later stages and often neglecting the early phases of start-ups. Attempting at closing the existing gap, in this paper, researching Dutch Internet start-ups’ funding in the early stages, from
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a human capital perspective is proposed. More specifically, it is suggested looking at what are the drivers of successfully securing angel capital as a newly born Dutch Internet company.
Some Internet start-ups become major successes through securing high initial
investments, while others fail from the beginning. In fact, according to a 2010 study, as shown by Timmermans et al. (2010), technology-based start-ups in the Netherlands survive the first 5 years of their life in a proportion of 67%. But for entrepreneurial ventures to be born and to develop, financing plays a decisive role as a must-have resource (Gilbert et al., 2006). This paper will look into the patterns of achieving a sufficient level of financial support in the early stages of existence. In his study, Hamilton (2001) identifies the following as the main types of new ventures’ financing: self-funding from the entrepreneur’s personal resources or from friends or family, “angel” investors, bank loans, funding from venture capital firms, and funding from larger corporate and government agencies. The purpose of this study is weighing in the different aspects of human capital over early stage angel financing in new Internet ventures. For practical reasons, venture and corporate sources have purposely been left out, as they are granted on an assumingly different basis and as they usually involve considerably higher investment amounts. Thus, the focus will solely lie on angel investments.
Lastly, whether we talk about determining a firm’s performance (Cressy, 1996) or securing external capital (Yuji et al., 2010), a start-up founder’s human capital may play a
critical role towards success. Human capital is a fundamental resource for acquiring financing, as the interplay between knowledge and skills creates value, which in turn critically signals
potential to external parties (Nofsinger & Wang, 2011). According to Yuji et al. (2010), based on more knowledge and larger networks, highly educated entrepreneurs, with a subsequently larger human capital, are more likely to obtain funds. However, of academic interest is what particular aspects of human capital are key for financing new Dutch Internet ventures. More precisely, in this study, the following question is going to be answered: Do specific aspects of a
founding entrepreneur’s human capital follow a pattern in securing early stage angel financing for Dutch Internet companies?
7 2. Literature review & Theoretical framework
Internet Start-up
Surprisingly, there is no generally agreed on definition of a start-up. However, it has been long tried to prove that they are a significant creator of jobs, innovation and economic growth. A start-up is a company that has just started out. Luger & Koo (2005) label start-start-up companies as new, active and independent - “business entity, which did not exist before during a given time period (new), which starts hiring at least one paid employee during the given time period (active), and which is neither a subsidiary nor a branch of an existing firm (independent). Additionally, Ries (2011) defines the start-up as “a human institution designed to create a new product or service under conditions of extreme uncertainty”. Start-ups are a fastly increasing, emerging business form (McDougall, Oviatt & Shrader, 2003) and consequently, so is the number of Internet-based ventures. However, the challenges associated with creating a new venture are quite significant.
Human Capital
The definition of human capital goes back as far as 1776, to the earliest days of economics, when Adam Smith defined it as “the acquisition of talents during education, study or apprenticeship, costs a real expense, which is capital in [a] person. Those talents [are] part of his fortune [and] likewise that of society” (Smith, 1776). The Oxford English Dictionary defines it as “the skills the labor force possesses and is regarded as a resource or asset.” The concept of human capital is fundamentally a mix of the the words “human” and “capital”. While from an economic
standpoint, capital refers to “factors of production used to create goods or services that are not themselves significantly consumed in the production process” (Boldizzoni, 2008), the human (the individual) is liable to undertake all economic activities, such as production, consumption and transaction. In short, human capital is the sum of all investments made in an individual with the aim to increase his or her productivity.
Piazza-Georgi (2002) makes the distinction between different dimensions of human capital. He breaks it down into three main categories: 1) one’s education, experience, natural talents (including the entrepreneurial spirit), which represent hardly transferable characteristics to other individuals, 2) individuals’ footprints that have become public property, so books,
8 media, blueprints and other sources of knowledge, and 3) relationships between individuals (“social and institutional capital”) which have been treated separately throughout time.
Extant literature recognizes the impact of human capital on three major dimensions: individually, organizationally and socially (Kwon, 2009). Becker (1993) states that a greater human capital has the potential to increase individual income, as a result of increased
productivity. It is therefore understandable why both the employee and the employer should make investments in this direction. On the other hand, as noted in Greider, Denise-Neinhaus & Statham (1992; In; Kwon, 2009), the prospects of an unemployed individual seeking
employment are directly related to the amount of human capital one possesses. Lepak & Snell (1999; In: Kwon, 2009) suggest that in the context of an organization, its core competences and competitiveness are tightly linked to the individual’s potential as a results of his or her human capital. Lastly, from a social point of view, human capital is seen as a synthesis of both individual and organizational points of view (Kwon, 2009). Beach (2009; In: Kwon, 2009) recognizes the possibility for human capital to “increase social consciousness of constituents within community”.
Human capital has been at the center of research for centuries now, yet the fast shifting shape of our society raises new questions every day. In the context of Dutch Internet start-ups, human capital represents an unexplored terrain. Throughout this study, all dimensions of human capital will be dealt with and its impact on external investment will be assessed.
Angel investors
Clearly, financing plays a crucial role in terms of necessary resources for any venture to be born, grow and develop. In fact, according to policy makers, lacking finance discourages entrepreneurs from starting a business (Bank of England, 2004; In: Atherton, 2012). Perhaps the most
important, the entrepreneur’s financing decisions have implications on all levels - operations, risk of failure, performance and future growth (Michaelas, Chittenden, & Poutziouris, 1999). Start-ups come across difficulties when attempting at obtaining financing from conventional sources, such as banks or public stock market, thus being left with private-equity options, such as
9 angel investors or venture capitalists (Fairchild, 2011). In this study’s context, a key source of capital is represented by angel investors. Angel investors or business angels (herewith BAs) are business individuals who provide risk capital to new businesses (Mason and Harrison, 1995). Freear, Sohl & Wetzel (1994) define business angels as a “diverse set of high net worth individuals who invest a portion of their assets in high-risk, high-return entrepreneurial
ventures”. Elizur & Gavious (2003) add that “angels could be relatives of the entrepreneur, or, alternatively, individuals from the industry, who were successful earlier with their own
companies and are now looking to help young companies”. They play a decisive role in a new venture’s survival and are often linked to their early development stages.
According to Sohl (2007; In: Maxwell, Jeffrey & Levesque, 2011)), BAs invest 16 times more in seed ventures, as opposed to their counterpart, venture capitalists (VCs). In 2008 alone, angel investors have put $19.2 billion in the American market, out which 45% in early stage companies (Sohl, 2009; In: Maxwell et al., 2011). Sapienza, Manigart & Vermeir (1996) noted that, as opposed to business angels, venture capitalists lean towards investing in mature or grown businesses, as exit cycles are shorter and the perceived level of risk is lower. Thus, studying business angels’ behavior is more relevant in the case of early development stages of ventures. Another reason for the particular interest in angel investors is that, unlike venture capitalists, angels do not make such investments (e.g. in early stage ventures) their primary business (Elizur & Gavious, 2003). Due to this, a problem commonly referred to as a ‘moral hazard’ is
eliminated. A moral hazard, as defined in specialty literature, is a conflict of interests between the parties or acting in “self-interest, regardless of the effect it has on the other parties involved” (Elitzur & Gavious, 2003).
Most certainly there are different factors influencing an entrepreneur’s choice of a financier, be it a bank loan, an angel or a venture capitalist. Aside from business angels’ interest in early stage ventures, other scholars note that, for instance, angels demand fewer controls than VCs and that the social ties between the investors and the entrepreneurs whose firms they invest in are stronger than in the case of venture capitalists (Goldfarb et al., 2007; In: Fairchild, 2009). Lastly, as seen in Elitzur & Gavious (2003), angels are able to help beyond only financing, through advising the entrepreneur and serving as a mentor. Opportunities are plenty and different environments are dominated by different parameters. As to what concerns the Dutch Internet start-up industry, based on practical experience featured in this study, it would be interesting to
10 discover what actual business owners believe to matter in their negotiations with business angels in terms of human capital (discussed below), ultimately finding an explanation of the factors driving early stage success.
Theoretical framework
The proposed theoretical model draws on a quantitative study by Gimmon and Levie (2010) that explores the effects of founder characteristics in attracting external investment and facilitating survival for new technology ventures, making use of human capital theory and signaling theory. As the authors point out, extant literature that has already covered human capital’s effects on investments have mainly been interested on the decision factors on the investors’ side
(MacMillan et al., 1985; Levie and Gimmon, 2008; In: Gimmon and Levie (2010)). This leaves room for researching what actual business owners believe is key in securing financing in companies’ early stages. In their study, Gimmon and Levie (2010) propose that business management experience, technology expertise and the academic status of new technology venture founders serve as signals of quality to external investors, thus facilitating financing and survival.
Gimmon and Levie (2010), Fig. 1 - Theoretical model of relationships between founders’ human capital, attraction of external investors and new high-technology venture survival.
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Therefore, Gimmon and Levie (2010) propose six hypotheses, out of which four are supported. The first three are related to human capital and external financing, while the latter three to human capital and its relation to firms’ survival. Relevant for this study, only the theory drawn on the hypotheses in the first category (H1a, H2a, H3a in the figure above) will be used, building thus the conceptual model of this research. The latter are concerned with venture survival and have been ignored for a couple of reasons. On one hand, proving these hypotheses requires collecting data of a different nature (quantitative) and a much larger time frame. The duration of this study is a constraint in itself and the data collection process is directly affected by it. Not only access to data about a venture’s life is a drawback, but there is also the challenge of quantifying this specific information in a relevant way for this study. On the other hand, the presented theoretical framework is an adaptation of Gimmon and Levie’s (2010) study results in a way that fits the topic, but most importantly in a way that fits the Dutch market. Data about Dutch Internet ventures is relatively new and further development is necessary before exploring it. Perhaps this could serve as an interesting further research topic. In this research, it will therefore be assessed whether the three dimensions – management experience, technological expertise and academic status -, as presented in Gimmon and Levie (2010), also hold valid for Dutch Internet start-ups, given the distinct face of the Dutch start-up scene.
Each of the three hypotheses is discussed in turn, below. For practical reasons, Internet ventures will be given the same treatment as technology ventures. Lastly, working with the authors’ adapted propositions not only makes sense from a theoretical point of view, but also helps structure the research well – the data collection is centered on the three dimensions, the results and discussion follow the same pattern and the researcher is enabled to focus on the three topics, but at the same time, to identify emerging theories.
Adding to the previous definitions, Piazza-Georgi (2002; In: Gimmon and Levie (2010)) defines human capital as “a stock of personal skills that economic agents have at their disposal”. Rauch et al. (2005; In: Gimmon and Levie (2010)), in their turn, break human capital into three categories: one’s education, one’s experience and one’s skills that facilitate getting work done. A great deal of studies (MacMillan et al., 1985; Muzyka et al., 1996; Baum and Silverman, 2004; In: Gimmon and Levie (2010) around capital market imperfections discuss the effect of the founding entrepreneur’s human capital on investors’ decision criteria. In short, they suggest that founders with greater human capital have access to more financing opportunities. The concept is
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herewith defined as the “wealth effect” of founders’ human capital. Gimmon and Levie (2010) link human capital theory to signaling theory (Spence, 1973; In: Gimmon and Levie (2010)), concluding that, if human capital is used as a predictor of future performance to potential investors, it needs to first be recognized as such by those. The theory suggests that investors are able to choose from a wider range of signals related to the founding entrepreneur’s human capital. At the same time, it helps predict which of these indicators they might look for.
Firstly, the authors suggest that new tech ventures whose founders have business management experience are more likely to attract investors than founders who do not. Several studies (Maidique, 1986; Hall and Hofer, 1993; Kaplan and Stromberg, 2004; In: Gimmon and Levie (2010)) support the idea that investors (in particular venture capitalists) are interested in founders with a relevant practical exposure. According to Hsu (2007; In:Gimmon and Levie (2010)), founding entrepreneurs’ previous start-up management experience is one the strongest decisive factors for funders. It is fair to assume that, just like venture capitalists, business angels are interested in individuals with a consistent past experience. While investigating the tradeoffs made by European venture capitalists in investment decisions, other researchers (MacMillan et al., 1987, Zacharkis and Shepherd, 2005; In: Gimmon and Levie (2010)) have found that criteria related to management and leadership skills top the ranking of the most desirable must-haves for an entrepreneur seeking finance. These have been regarded even higher than product-market or functional capabilities related criteria. Consequently, and just like in Gimmon and Levie’s (2010) paper, this study will attempt at proving that an experienced founding entrepreneur is more attractive for investors in the case of Dutch Internet Start-ups.
Proposition 1 - New Internet ventures whose founders have business management
experience are more likely to attract investors than new Internet ventures whose founders do not.
Secondly, given that many markets are dominated by first time entrepreneurs of early-stage technology ventures and that the level of uncertainty to what concerns those is high, alternative signals for investors are necessary. Business angels, just like venture capitalists, presumably cannot rely on only one indicator. Thus, Gimmon and Levie (2010) hypothesize that new tech ventures whose founders have general technological expertise are more likely to attract investors than founders who do not. In their research on Israeli high-technology firms, Chorev
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and Anderson (2006; In: Gimmon and Levie, 2010) place a high importance on technical education, as they believe new tech ventures entrepreneurs require a deep understanding and problem-solving abilities when they face technology-related issues. At first glance, this makes perfect sense. However, evidence in Gimmon and Levie’s (2010) study suggests the contrary, dismissing this theory. Contrary to the initial belief, it is proven that technological expertise does not significantly increase the chances of obtaining external investment. Thus, this finding’s relevance and applicability to the Dutch start-up scene will be dealt with in this study. Drawing on Gimmon and Levie’s (2010) results, Proposition 2 is formulated.
Proposition 2 - New Internet ventures whose founders lack general technological expertise are as equally likely to attract investors as new Internet ventures whose founders do.
More research suggests that there are many other signals that investors might be interested in, such as social status (Shane and Khurana, 2003; In: Gimmon and Levie (2010)), top management affiliations (Higgins and Gulati,2006; In: Gimmon and Levie (2010)), recommendations from other investors (Elitzur and Gavious, 2003; In: Gimmon and Levie (2010)) or strategic partners (Stuart et al., 1999; In: Gimmon and Levie (2010)). However, in line with Rauch et al. (2005; In: Gimmon and Levie (2010)), academic status will be herewith
discussed and used as part of the conceptual model. Consequently, the third relevant and
confirmed hypothesis in Gimmon and Levie (2010) states that new tech ventures whose founders have high academic status are more likely to attract investors than new tech ventures whose founders have low academic status. This hypothesis relies on the assumption that high academic statuses may signal “quality” to investors in highly uncertain markets. Spence (1974; In:
Gimmon and Levie (2010)) and Becker (1993; In: Gimmon and Levie (2010)) believe that academic degrees usually carry information about “differences in abilities, persistence and other valuable traits of individuals”, while Maidique (1986; In: Gimmon and Levie (2010)) proved that start-ups success is positively affected when the entrepreneur’s education has been completed in reputed establishments, as regarded by venture capitalists. Simply put, it can be talked about a “Matthew” effect or, the fact that status attracts resources which in turn higher the probability of success (Merton, 1968; In: Gimmon and Levie (2010)). Lastly, Hsu (2007; In: Gimmon and Levie (2010)) studied a sample of early-stage Internet ventures and concluded that teams with
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higher academic status, such as a PhD, were significantly better valuated than teams with lower academic degree holders. Based on these assumptions, Proposition 3 is formulated.
Proposition 3 - New Internet ventures whose founders have high academic status are more likely to attract investors than new Internet ventures whose founders have low academic status.
Mention must be made that, in this study, focus lies exclusively on early-stage Dutch Internet start-ups and their success in terms of attracting angel investors. It is particularly important to understand the business ownership’s vision on how the three proposed concepts affected their negotiations with the business individuals.
3. Methodology
The theories emerged from Gimmon and Levie (2010) required an extensive and in-depth analysis, in an attempt to categorize and link each of the three factors - management experience, technological expertise and academic status - to the likelihood of acquiring angel investments. The data necessary for this research were gathered through contact with business owners at different Dutch Internet start-ups. The individuals taking part in the discussions have previously been directly involved in the negotiations with business angels and thus qualified as appropriate to offer their opinion on how their human capital had or could have differently impacted
investors’ investment decisions. The respondents work for companies specialized in various businesses, from real estate to growth hacking tools and online video streaming. It can be argued that the wide range of industries covered in this research would likely enhance the
generalizability of the findings. Also, anonymity and confidentiality were guaranteed for all respondents, considering the sensitive nature of the discussions and the potential influence on current and future financing opportunities.
In order to understand the insights of the underlying assumptions, a qualitative research was undertaken. It was crucial to understand the perception of the business ownership side when it comes to the contributing factors of their success, but also to understand the context and to
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prove that indeed a pattern in acquiring funds exists. Considering that the aim of the study is to confirm and explain a specific behavior, whilst the emphasis lies upon developing the theory, the appropriate research strategy is grounded theory (Saunders, Lewis and Thornhill, 2009).
Grounded theory is a strategy used to offer an explanation or to build a theory emerging from the main findings in the data, but also to add up to the existing theory.
For this research, the data collection method of choice was through semi-structured interviews. According to Sanders et al. (2009), qualitative data collection, including semi-structured interviews, allow for the operationalization of the researched concepts or, in other words, for their translation into tangible indicators of their existence. By definition, interviewing implies a more personal touch with the subjects. Saunders et al. (2009) suggest that individuals are more likely to take part into research from an interviewee position rather than completing a questionnaire or a survey. This draws on the assumption that, as soon as the individual identifies himself or herself with the topic and as soon as the interviewer shows interest for discussing his or her work, the employee is likely more open about her or his field and expertise. Moreover, semi-structured interviews allow the researcher to cover a wider range of topics, with the possibility of changing the order of the questions based on the flow of the conversation. They enable the interviewer to probe each of the answers with follow-up questions, for gaining
additional insights and depth of the topic. According to Patton (2002), the “purpose of qualitative interviewing is to capture how those being interviewed view their world, to learn their
terminology and judgments, and to capture the complexity of their individual perfections and experiences”. In line with Patton’s (2002) guideline, the preparation for the interviews consisted of a list of core themes and questions which can be found in Appendix A. One important
particularity of semi-structured interviews is flexibility, which allows the interviewer to diverge from the current topic in an attempt to explore other areas of interest. In fact, the open-ended nature of the questions combined with the flexibility of this design allowed for discovering possible alternative explanations of the results. A more comprehensive coverage of the findings can be found in the Discussion section. Lastly, even though the underlying assumptions were drawn from a quantitative study by Gimmon and Levie (2010), I found the proposed concepts difficult to quantify in the current setting and also not suitable for a structured interview.
A total of seven companies and their founders have been studied, but only the last five have been included in the research. A description of each particular case can be found in the
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following sub-chapter. The initial two interviews have been used for piloting purposes and, in spite of not yielding any significant conclusions in terms of the researched question, they helped refine the interview schedule and facilitated the healthy execution of the latter ones. On top of the five interviews with Dutch Internet entrepreneurs, two other discussions with business angels have taken place, in order to limit any potential biases and to confront the study’s results with an expert opinion. With the consent of the participants, the interviews were audio-recorded and additional notes were taken, facilitating the accurate translation of the discussions into relevant concepts.
Information about the potential candidates was extracted from a curated list of companies found on crunchbase.com and through the personal network of the researcher, as well as with the help of two start-up accelerators. A total of 46 Dutch Internet start-ups have been contacted, while seven replied positively, resulting in a success rate of 15.2%. The first touch point with the companies consisted of a letter of intent sent electronically. An example can be found in
Appendix B. Access was later granted after establishing further contact by e-mail and phone. Feedback was requested and provided after each of the seven interviews, helping thus reach the most suitable set of topics and questions. Based on the guidelines of Saunders et al. (2009) regarding the interviewing environment, the discussions took place in convenient places for the entrepreneurs, be it at their companies’ offices or in other neutral places. In all five valid cases, contact through a follow-up, post-interview e-mail or phone call was established, with the purpose of filling up the existing gaps and avoiding misunderstandings.
In terms of data analysis, a combination of both inductive and deductive methods were used. Firstly, the data were appropriately coded. According to Saunders et al. (2009), three main types of coding are differentiated and should be conducted in the following order: open coding, axial coding and selective coding. Open coding is a disaggregation of data into units. Each identified unit is labeled accordingly with a specific concept. Axial coding refers to the process of identifying relationships between the units labeled in the open coding. New categories and their link then emerge. The final step, called selective coding, is meant to identify so called core or central categories and to align them with the existing research, thus developing a grounded theory. As also seen in Saunders et al. (2009), another analytical procedure defined as “pattern matching” was used. According to Saunders et al., ‘pattern matching involves predicting a pattern of outcomes based on theoretical propositions to explain what is expected to be found
17 and if the pattern of the data matches that which has been predicted through a conceptual
framework, you have found an explanation’ (Saunders et al., 2009).
In terms of internal validity, the relevance and quality of the collected data were highly regarded. Beside all participants being directly involved in the negotiation process with angel investors, their start-ups fulfilled all the requirements, namely being in their early development stage (or having obtained angel investments in the early stages), being founded and competing in the Dutch market and lastly, qualifying as Internet ventures. A lot of attention has been given to reducing participant and interviewer bias to the lowest possible. As already mentioned, the participating entrepreneurs were promised anonymity and confidentiality of the sensitive data disclosed. All the information included and presented in the study has been granted prior permission. A receptive and cordial attitude towards the interviewees facilitated removing any contextual pressure.
Lastly, in terms of reliability, I am confident that replicating the study would yield consistent results, as far as the Dutch Internet start-up scene is concerned and the same parameters hold. I believe that the novelty the study brings and the value it adds are crucial to understanding the dynamic and rapidly adapting Dutch ecosystem. Further research ideas and potential alternatives are discussed in the following sections.
3.1 Sample - case by case
As described in the previous chapter, five business owners of Dutch Internet start-ups have gone through semi-structured interviews, in an attempt to assess whether the three relevant dimensions of human capital - management experience, technological expertise and (higher) academic status - follow a pattern to what concerns angel investors’ financing decisions.
Entrepreneur 1 (Male, 25) is the co-founder of an Internet start-up specialized in real estate services, based in Rotterdam, the Netherlands. He is a university drop-out and a self-taught programmer, with previous experience in a similar company and several student organizations. The company’s core activity comprises linking prospective tenants with property owners and managing all aspects of the process, from payments, contracts, legal terms, tenant applications and verifications, all on their online platform. The company is in its very early stages, being
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founded in mid-2015. Their funding so far has been composed of angel investments and governmental grants. The interviewee has recognized the dynamic nature of the Dutch start-up ecosystem and has characterized it as “diversified, rapidly growing and full of intertwined efficient hubs in the main cities”.
Entrepreneur 2 (Male, 26) is the founder of an Internet start-up providing growth hacking and e-mail marketing tools, based in Rotterdam, the Netherlands. He is as well a university drop-out and a self-taught programmer, with experience in two significantly different start-ups prior to founding this company. The firm is specialized in helping other businesses grow in an
accelerated way, through mining crucial data in the online and providing customers with highly targeted leads. The company is six months old and has been profitable since its first day. Its funding has solely been granted by angel investors. The entrepreneur described the Dutch start-up ecosystem as unique and incomparable to other countries.
Entrepreneur 3 (Male, 35) is one of the co-founders of an online video service type of company, with two main business activities - streaming and mobile monetization tools, based in
Amsterdam, the Netherlands. He can be described as a sales specialist, having held numerous past positions, both in the corporate and in the start-up world. He has been part of
Salesforce.com, Accenture and Oracle, as well as one start-up. His experience made him a
valuable and unique interviewee, as he had a very interesting contribution to this research, from a sales person’s point of view. Besides the main streaming service, the company manages
subscribers and payments, automates billing, provides analytics, tax management solutions and parts of the content. The firm is already in the maturity stage, being founded in 2011 and has obtained most of its revenues from its own sales and one major angel investor. Throughout time, the interviewee has been negotiating with several angel investors and described the process as “lengthy and never the same”. His view on the Dutch start-up ecosystem is that of a “healthy and filled with great talent environment”. In this case, attention has mainly been given to the
company’s early stage and the negotiations carried prior to growing.
Entrepreneur 4 (Male, 30) is the founder of an Amsterdam-based start-up, specialized in finding user-tailored gifts for any occasions. The owner is a university graduate, possessing a Bachelor’s
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degree in Computer Science and with previous experience in corporate sales and several start-ups. The online company targets individuals seeking tailored gift ideas and offers advice,
payment and delivery solutions from and with affiliated stores. The start-up was founded in 2014 and already benefitted from major investments from several business angels. According to the interviewee, more than fifty angel investors have been contacted and negotiations took place.
Entrepreneur 5 (Female, 27) is the founder of an online recruitment platform, based in
Amsterdam, the Netherlands. As a college drop-out, she has expanded her knowledge and skills through several means, including online courses, self-practice and to what concerns start-ups, through an incubator experience. She has previously held a management job in the Business Development department of a Dutch corporation and served several NGOs and student
organizations positions. The company’s activity comprises linking fresh graduates with working individuals which in turn recommend them to their professional circles. The start-up has only been active for less than half a year, but it is already benefitting from a lot of attention and several angel investments.
4. Results
This section entails the post-interview results as they were coded into conclusions and are also supported with evidence from the discussions with quotes from the interviewees. All five
interviews were conducted in English and the participants were directly involved in negotiations with angel investors.
4.1 Management Experience. Proposition 1
Gimmon and Levie (2010) suggest that new tech ventures whose founders have business management experience are more likely to attract investors than founders who do not. Based on this assumption, a set of questions related to their previous work experience, the role of their experience in negotiations, their feedback from investors and their personal opinion on this matter, were developed. On top of these, and valuable for all other propositions, the
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Dutch start-up ecosystem and of different types of financing, their role in the companies, their vision, their drive and their mistakes as pitchers, for a better integration of all three points.
All five respondents have previously had to some extent relevant business management experience, ranging from corporate positions to working in similar start-ups beforehand. Entrepreneurs 1, 2 and 4 have previously had contact with the Dutch Internet start-up
environment through holding leading positions in technology ventures, while entrepreneurs 3 and 5 have switched management jobs in a wide array of companies, such as Accenture,
Salesforce.com, Apple, Philips or Oracle. When asked about the role their experience played in their discussions with angel investors, three out of five entrepreneurs believed it did not matter or that they have never been explicitly inquired about it. The latter two believed experience could have mattered, but insignificantly, supporting their position with arguments such as the
availability of test options - e.g. when management experience is lacking or hard to quantify, investors can assess it through complementary tests-, the availability of substitutes – one’s weaknesses can be balanced out with someone else’s strengths - and finally, the prospects of scalability over the importance of management experience – how fast and how well can one scale his or her idea?
“If suddenly there is a 4 million investment round coming in, you need to hire very aggressively. Do you have the experience to hire the right people and manage them the right way to scale up quickly?” (Interviewee 3, Male, 35)
Even though there is an unfavorable consensus regarding the role management skills play in acquiring angel investments for Dutch Internet start-ups in their early stages, the idea of scalability appeared throughout all discussions. All interviewees noted that in their experience, growth plans were highly regarded, whether through internal development or hiring, and that most of the time, investors look at the individual and his or her drive, as opposed to how many management positions and achievements they had obtained. One interviewee specifically stated that angel investors want to examine the entrepreneur’s hiring plan and vision about the future, in order to get a grasp of how he or she is going to manage.
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In one other instance, the interviewee found his past projects experience to be of value only for himself, rather than a decisive factor for obtaining angel investments. The investor will have a sense of security as long as the team aggregates individuals covering all areas of expertise (technology, product, marketing, sales, etc.) and will not particularly decline to fund a start-up based on a lacking trait of the entrepreneur. Accordingly, it was unanimously agreed that there are many very good entrepreneurs who are not necessarily good managers and vice-versa, which served as the final argument why management experience does not matter when negotiating financing.
In hindsight, to what concerns Dutch Internet start-ups, management experience is not one of the human capital aspects that entrepreneurs find of importance when negotiating with angel investors for financing their ventures. Thus, Proposition 1 was not supported.
4.2 Technological expertise. Proposition 2
In Gimnon and Levie’s (2010) study it is proven that technological expertise is not a key driver of a bigger success in terms of acquiring finance for new tech ventures. Thus, proposition 2 sets the grounds for the second area of discussions with Internet entrepreneurs, where I tried to prove that there is indeed a pattern that is applicable to all new tech ventures in this sense. In fact, it was unanimously agreed throughout all five interviews that technological expertise on the founder’s side has not impacted the discussions with angel investors in any way. Questions related to the entrepreneurs’ technological understanding, the extent of understanding at the time of founding the company, the importance technological expertise played in the negotiations with angel investors, as well as the mutually exclusiveness of founding a company and having little technological expertise, were formulated.
Interestingly, four out of five respondents were self-taught programmers, while the other interviewee held a Computer Science Bachelor’s degree. However, they have all rated their technological expertise ranging from fairly broad to exceptional, but found it to be of relevance for other aspects than acquiring angel investments. It may seem surprising, given the nature of a tech or Internet start-up, but the relevance of technological expertise to angel investors has been proved to be limited.
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All respondents noted that for a better understanding of their product, a certain extent of technological expertise, knowledge and skills are required. However, most of them admitted that in their particular cases, these have only been acquired throughout time.
“It can be learned. It is not going to be as fast, it is not going to be as good from the beginning. You might need to give up something along the way [...]” (Interviewee 1, Male, 25)
In other words, throughout their discussions with investors, the founders found
themselves on different points on the learning curve. In two cases, not only the investors did not discredit the entrepreneurs for lacking a higher degree of technological understanding, but they also offered mentoring and advice on how to close the existing gaps. Needless to say, a lower technological expertise and founding a tech company were proved not to be mutually exclusive in any of the studied cases.
Secondly and tightly linked to the previous point, technological expertise means one can understand the environment, according to the entrepreneurs. It means that the business owner is able to find other individuals to fill up the gaps in their capability and skills. One particular respondent stressed out the fact that the more in-depth the understanding of the technological aspects of the company on the entrepreneur’s side is, the bigger the synergy between him or her and the rest of the team. In other words, a uniform view and perception of a company’s product or service by everyone is the ultimate catalyst. According to the same interviewee, this ultimately contributed to having less conflicts, less misunderstandings and a better work relationship. However, technological expertise did not play any crucial role in acquiring funds from angel investors.
Lastly, it was generally agreed that different scenarios, such as bigger investments from different sources (Venture Capitalists, banks, etc.) might have different incentives and
requirements. All interviewed entrepreneurs believed that a bigger and more in-depth expertise could only be a decisive factor when very complex and specific projects are being planned. To conclude, evidence combined from all five interviews suggests that, indeed, technological expertise does not impact in any way angel investors’ financing decisions. Thus, proposition number 2 is supported.
23 4.3 Academic Status. Proposition 3
In line with the “signaling theory”, as portrayed in Gimon and Levie (2010), a third proposition emerges. It is believed that new tech ventures whose founders have high academic status are more likely to attract investors than new tech ventures whose founders have low academic status, as a “signal” of higher qualities and implicitly, expectations.
All five respondents have strong beliefs that their academic background - where
applicable - has had no significant implications on their success in terms of acquiring funds. In fact, as a theory-dismissing argument, three out of five interviewed entrepreneurs were college drop-outs, while four of them were self-taught individuals. In terms of team composition, none of the other relevant members for the negotiations possessed any degree higher than a Master’s degree.
Respondents stated that, even though their academic past has been a discussion topic, it has never been a central issue and most definitely it was not a decision factor for the investors. It was however acknowledged that, for bigger scale projects, higher academic status and
preparation might require more in-depth understanding of certain concepts.
“I think if you get into bigger scale, if you go to the hundreds of millions and billions of
dollars in the industry, I think maybe we need someone with an MBA in Finance here to do our finance “(Interviewee 5, Female, 27)
While academic status and more specifically, a higher one, did not prove to be of
relevance for investors, the interviewed entrepreneurs recognized that business angels have high expectations in terms of preparation in all dimensions. This was broken down into the
understanding of the industry, a thorough business plan and a drive to learn. The lack of necessity both in terms of high academic status and, as previously discussed, in terms of management experience could be perhaps explained by a couple of factors. According to the interviewees, the presence of numerous accelerators and incubators, the exposure to real life business issues, both in the academic and in the professional world, as well as the speed at which technology evolves, might ultimately offer a sufficient coverage of both theoretical and practical matters for the entrepreneurs, especially in the early stages. Therefore, as to what start-ups and
24 their early life is concerned, a higher academic status has yet to be identified as a decisive factor in acquiring angel investments. Thus, Proposition 3 is not supported.
4.4 Feedback from investors
As described in Chapter 4, two business angels have been interviewed alongside the
entrepreneurs in order to get a complete, non-biased and impartial picture of how much of an importance human capital plays in awarding angel investments to Dutch Internet start-ups. Both investors agreed with the fact that human capital plays an important role in the success and especially in the early survival of start-ups. This study’s results made complete sense to the two investors and were consistent with their beliefs, but at the same time it was agreed that the studied dimensions of human capital are fairly hard to quantify. Confronting the results of this paper against two individuals with vast experience in terms of investments in Dutch start-ups provides a certain extent of face validity to the research.
To what concerns management experience, both of the interviewees agreed that when it comes to start-ups, given the predominant demographics in the Dutch scene, they do not look at management experience per se when making investment decisions. However, they noted that a clear plan and a thorough understanding of the business proposition on the entrepreneur’s side send out strong signals of an owner’s abilities to complete a proposed action. On top of these, management experience has been found to be important in some cases, but at the same time it has been recognized to be substitutable when other employees, cofounders, mentors, etc. come in place. As for technological expertise, the findings of this study proved to be in line with the beliefs of the two investors. While they considered understanding the industry crucial,
technological expertise has been recognized as necessary only within the range of the company’s activity and not specifically by the entrepreneur himself or herself. However, both interviewees testified that most often the whole team’s human capital and specifically technological
understanding are taken into account. In other words, technology-related tasks can easily be fulfilled by designated individuals and not by the Internet entrepreneur himself. Therefore, the entrepreneur’s technological expertise was not regarded as a stand-alone decisive factor when making decisions. In terms of academic status, it was noted that investors are interested to see an individual’s education, but the idea that a higher academic status would be preferred over a lower
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one was dismissed. One of the two interviewees commented on the availability of a broad
spectrum of educational tools, as well as the great number of learning spaces, especially designed for entrepreneurs. In short, they stressed out the importance of education for the individual, but disagreed with Gimmon and Levie’s (2010) proposition that a higher academic status would signal “quality” and therefore be more attractive for an investment. The results of this study were therefore confirmed entirely.
Overall, the two investors pointed out that in their opinion, there is no pattern to what concerns a promising entrepreneur in the Internet-based ventures, but rather a mix of multiple human capital dimensions, different with every instance. The extent to which each one of the attributes needs to be present differs from company to company and from investor to investor, while the fit between the angel and the entrepreneurial team is the most relevant point.
4.5 Non-business professional angel investors
Drawing on the discussions with all five entrepreneurs, angel investors in the form of non-business individuals, so friends, family, acquaintances and other personal network members (as defined by Hamilton (2001)) , have different expectations and incentives when deciding to put their money in a business idea. Three out of five interviewees had obtained angel financing from the abovementioned sources in the early stages of their companies and all testified that human capital played a big role nonetheless. However, the three dimensions studied in this research, namely management experience, technological expertise and academic status were not found to be of relevance in this situation. Instead, a mix of general human capital aspects is believed to have contributed to their successful angel (non-business) investment acquiring. One of the
interviewees stated that her success could be described as a recognition of her innate abilities, her position in her social network and of her pre-labor market non-academic achievements and interests. This mix has projected her as a trustworthy entrepreneur and has secured her company an initial form of investment. In line with her testimony, one other entrepreneur and one investor believed that one’s motivation, drive and the sense of ownership could be easily quantified by looking at the entrepreneur’s passions, hobbies and interest. This may not be something new to the world, but it certainly leaves room for further research.
26 5. Discussion
This chapter puts into perspective and offers alternative explanations to the findings of this research. Both the confirmed and dismissed propositions are reflected on and other outstanding findings are discussed. Trying to explain the deviations from the theory, an attempt at identifying the drivers of the unexpected results of the study is made. Lastly, the limitations of this research, as well as the implications for further research are dealt with.
5.1 Discussion Points
What is success? The definition is open to one’s interpretation, but according to widely accepted beliefs when it comes to newly born ventures, success can be measured in the volume of
financing one obtains. Of course, there are many other key success factors and it can be argued that initial investments and failure are not mutually exclusive, but certainly obtaining finances is the first milestone a start-up needs to achieve on its way to the top. As Gilbert et al. (2006) were pointing out, entrepreneurial ventures’ birth and development are decisively dependent on the must-have resource that money is. In the Netherlands, one of the most dynamic start-up
ecosystems in the world, new ventures prosper at high speed and benefit from high success rates, including in terms of survival. But what are the determinants of this situation in Europe’s Silicon Valley? The aim of this research was to identify a pattern of human capital characteristics of the founding entrepreneurs in Dutch Internet start-ups in acquiring angel investments. More
specifically, I analyzed three human capital dimensions proposed by Gimmon and Levie (2010) that would help secure funds from angel investors and guarantee success in terms of initial development. Three propositions were made, as discussed below.
Firstly, through Proposition 1 I expected that founders with a considerably higher management experience would be more attractive to external investment than their
non-experienced counterparts. Not only the results of this study proved that this is not the case for the Dutch scene, but they also revealed that, according to entrepreneurs, management experience does not matter as a single decisive factor. Having gone through a similar experience or having had a management position might be relevant in the big picture, but to what concerns the founding entrepreneur, this trait can be easily substituted.
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Based on the discussions I have had with business owners of Dutch start-ups, there is a general agreement that the available resources an aspiring entrepreneur has are plenty and enough to prepare him or her for the process. In short, everyone is encouraged to become an entrepreneur. There are many incubators and accelerators that take the future entrepreneurs and their viable ideas through all the necessary learning points, offer them the necessary resources in terms of teaching and mentorship and set them off for their journey. On top of this, university programs revolve around entrepreneurship, inspire young people and offer them the necessary challenges to be ready to start on their own. Also, it was generally agreed that the culture in the Netherlands is a nurturing factor of ventures’ success. With a community that values growth, mutual help and which is carefully regulated, there is room for everyone to make a change.
To conclude, angel investors in the Netherlands place low importance on managerial experience. This trait does not signal per se potential for investment and is seldom regarded individually, but rather in a mixture of general characteristics. The surprising findings are not in line with the model proposed by Gimmon and Levie (2010). However, it is important to note that the authors recognize a heterogeneous spread among different countries when it comes to
desirable entrepreneurial human capital traits. For instance, as opposed to the results of this study (particularly interested in the Netherlands), Italian investors value managerial experience to its highest (Gimmon and Levie, 2010). It has become clear that different markets require different sets of skills. As discovered throughout the interviews, investors in the Dutch scene value people with the ability to learn, rather than individuals who are already shaped. It could be argued that this discrepancy might be an interesting point for further research.
Secondly, Proposition 2 supported the idea that Internet entrepreneurs without
technological expertise are as equally likely to obtain angel investments as experts in the field. The hypothesis was confirmed by the collected data and was strongly supported by the fact that, in the studied sample, a majority of people were self-taught individuals, far from experts. Interestingly, it was generally agreed and later confirmed by angel investors themselves that the founding entrepreneur must serve as a binding material, rather than an expert. In other words, the ability of the entrepreneur to get on board people who can substitute for his or her lack of
practical tech skills, as diverse as possible so that the team is complete, tops the list of investors’ preferences. It was however recognized that technological understanding would be necessary for practical reasons, such as completely understanding one’s service or product or being able to
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make or to avoid risky decisions. It was also stressed out that a better understanding of one’s technology helps reduce tensions and facilitates the cooperation between the entrepreneur and the rest of the team. In short, technological understanding is important, but it does not represent a decision factor for angel investors ready to invest in new Internet ventures. This may be
surprising and it could be argued that, in order to be able to solve technology-related problems, technical skills are very important. However, investors in Dutch start-ups have a different
approach. It makes perfect sense to rather expect a whole team to be able to understand and solve technology-related problems, than only when it comes to the entrepreneur him or herself. In fact, as seen in Gimmon and Levie (2010), whereas in Israel and the United States (Chorev and Anderson, 2006; Roberts, 1968; In: Gimmon and Levie, 2010), both technological skills and management experience are highly regarded by investors, in Italy, the venturer’s technological skills had no effects on external investment (Colombo and Grilli, 2009; In: Gimmon and Levie, 2010). To conclude, technological expertise plays some role and it is important for an Internet start-up’s team cohesion, but it fails to matter as an angel investor’s decision criteria, as long as Dutch ventures are concerned.
Thirdly, Proposition 3 is concerned with the entrepreneur’s academic status. I have
previously hypothesized that higher academic status equals more chances of being awarded angel investments. This proposition was based on the idea that a recognized academic degree signals quality to the investors and eases the decision making process. However, the findings of this study completely dismissed the theory and thus Proposition 2 was not supported. A significant part of the sample consisted of college drop-outs and self-taught individuals, yet all the sampled companies have successfully obtained angel investments in their early stages. The underlying assumption for this proposition was that new ventures’ history is hard to track and investment decisions need to be made on a couple factors. When the first two hypotheses would not yield satisfactory results, another “signal” is required. The potential of the entrepreneurs and
subsequently of the new ventures is highly uncertain, therefore it was fair to assume that a higher academic status would ultimately signal quality and reduce risk. For the Netherlands, however, this failed to be proven.
When none of the three major (general) human capital traits decisively contributes to an angel investor’s decision making process, a couple questions arise. Are investors in the
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trusting the human as it is? This issue has been brought up throughout the data collection process and it was unanimously acknowledged that it might be the case that micro traits matter, as
opposed to the macro ones. In fact, it was recognized in multiple cases that what investors
actually value is the fit between them and the team, as compared to the entrepreneur matching all three proposed characteristics (management experience, technological expertise and academic status). In many of the cases, the entrepreneurs’ (and their team’s) personality was a decisive factor and it was often tested through personality tests and assessments. Moreover, business angels often serve as mentors and offer guiding through the process.
Signaling theory as proposed in Gimmon and Levie (2010) cannot be applied in the Dutch horizon as different parameters apply. Of course more research is desirable, but to what concerns Dutch Internet start-ups, quality is signaled through a mixture of “soft” human capital characteristics. As initially defined, human capital represents an interplay between knowledge and skills. Drawing a model to fit all Internet start-ups would require further investigation, but worth reminding are a couple of characteristics. It has been pointed out throughout the interviews that entrepreneurs feel that investors seek individuals with a clear mission and vision, with a drive to learn as much as possible, striving to know a bit of everything. Generalists are preferred to experts. It may seem obvious, but an in-depth understanding of the market is required, as opposed to a long history of management experiences. Also, the ability to scale fast is a must have and a well-documented and supported hiring plan is desirable. Lastly, it is required of entrepreneurs to be open to explore new channels, but at the same time be capable of merging a team with the skills to do this.
5.2 Strengths, Limitations and Contribution to Research
There has been very little previous attention given to pre-maturity Internet ventures, especially in the Dutch horizon. Research has often ignored the importance of the growth and development stages and has yet to pay any attention to angel investors as a type of financier, as well as the human capital characteristics that drive investment decisions. With this study, I attempted at filling up the gap in the literature and finding a pattern of key success factors. In line with the novelty of this particular area, my study has revealed new useful findings. Throughout this research, I explored a wide range of industries and sectors, focusing on Internet-based
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companies. This way, I tried to strengthen the power of the research and to increase reliability and external validity. Though this study could be replicated in a quantitative fashion, I believe the choice of design and strategy has helped obtain a real image and in-depth insights of the Dutch start-up ecosystem. A qualitative approach has ultimately contributed to understanding the Dutch environment as it is, with genuine information coming from entrepreneurs directly
involved in the relevant processes and reflecting the actual status quo.
However, certain limitations constrained the development of the study, making room for further research. Firstly, the small sample size may not be representative enough. Secondly, the time frame allocated for data collection and analysis represented another constraint and is tightly linked to the number of interviewed companies. I therefore propose replicating the study over a longer period and including a considerably bigger number of Dutch Internet ventures. Thirdly, it has been beyond the scope of this research to investigate start-ups’ early survival and its
relationship with financing. As pointed out before, success can be measured on many different levels, but I strongly believe that understanding one of the most fundamental aspects (early financing) of a company’s development is the first crucial step. Moreover, social capital (another relevant type of capital) has been ignored in the research, but there are reasons to believe it plays an important role in an entrepreneur’s and his or hers venture’s success. Hence, further research could consider the effects of social capital on a firm’s financing success and survival. Fourthly, the theoretical framework draws on a quantitative study that focuses more on venture capitalists, rather than on angel investments. Its adaptation to the proposed conditions might have impacted the development of this study. Lastly, I made no distinction between different structures of Internet ventures. Whilst essentially any business could carry out their activity in the online environment and thus become an Internet company, there are types of firms that are (or not) technologically intensive. In the latter scenario, for example, the second proposition (regarding technological expertise) might matter to a different extent. Further research could complement the existing gap.
5.3 Contributions for Practice
My findings conclude that Dutch Internet entrepreneurs seeking angel investment should rely on a generally acceptable set of “soft” human capital characteristics, as opposed to the three general
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ones (management experience, technological expertise and academic status). The entrepreneurs are more likely to obtain external investments if they are generalists, as opposed to experts and if their focus is on creating a compact, bound team. Consequently, this study provides the corner stone for industry specific research. In terms of managerial implications, the findings of this research could be relatable for any newly born Internet venture that is preparing to start
negotiations with financiers. I strongly believe that more research would help create a model that is accurate and relevant for the Dutch start-up ecosystem and that would help entrepreneurs (and consequently their start-ups) to obtain external investment.
6. Concluding thoughts
Previously, drivers of success in terms of angel investments for Internet start-ups represented an unexplored area. Even more so, no research has questioned the implications of certain human capital characteristics on attracting external investments on the Dutch scene. This study compiles the conclusions from five discussions with Internet entrepreneurs from the Netherlands who have negotiatied with angels in their comapnies’ early stages. Drawing on the interviews, I aimed at answering the following question: “Do specific aspects of a founding entrepreneur’s human capital follow a pattern in securing early stage angel financing for Dutch Internet companies?” Based on a model presented in Gimmon and Levie (2010), I made three theoretical propositions. Propositions 1 and 3 were not supported, while proposition 2 found evidence in the research. In other words, none of the proposed characteristics (management experience, technological expertise and academic status) has any direct influence on obtaining angel investments, as far as Dutch Internet start-ups are concerned. However, even though the theory is dismissed, a general direction is established and a set of emerging traits is proposed. A pattern has yet to be
discovered and it can be concluded that, in order to identify a recipe for aspiring entrepreneurs seeking finance, more research is necessary. The directions for further research are discussed in the Discussion chapter.
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