Overview

The availability of external finance for early-stage enterprises is vital for entrepreneurship and innovation. Using data from Swedish administrative registries, we identify business angels, that is, 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. However, angels have distinguishing characteristics compared to the rich in general. A majority of angels have prior work experience in start-ups, typically as executives, and have chosen business- relevant degrees while in higher education. Angels also have much higher general ability (as measured using cognitive and non-cognitive ability scores from military enlistment tests and college admission tests) than even other very wealthy peers. Their asset allocation is very biased towards the riskiest assets, suggesting unusually low levels of risk aversion and strong non-pecuniary investment motivations. Angels making the most successful investments and those making the least successful ones are farther 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.