Pär Mårtensson

Business angel (BA) investing is associated with various types of risks, where relationship risk often is highlighted as being especially critical (Fiet, 1995). Three investor strategies for mitigating relationship risks associated with BA investing in young private firms can be traced in the literature: (i) indirect control through monitoring and rewarding/punishing entrepreneur behavior and output, (ii) direct control through active involvement, and (iii) relying on mutual trust (Van Osnabrugge and Robinson, 2000; Maxwell and Lévesque, 2011). While early research in the field adopted a rather static view on BA categorization (Coveney and Moore, 1998; Sørheim and Landström, 2001), more contemporary research shows that BAs change investment roles across investments (Avdeitchikova, 2008; Lahti, 2011). However, whether BAs behave differently regarding risk mitigation within investments is less explored. This explorative study contributes to the opening of the black box of how BAs may shift risk mitigation strategies over time within single investments.

We explore whether business angels shift strategies within single investments in order to overcome relationship risks associated with investing in young private ventures. And, if so, what triggers such shifts. Primary data were collected from 32 interviews with four matched business angel-entrepreneur dyads. Extensive iterative theory and cross-case comparisons reveal that risk mitigation strategies consist of a mix of various degrees of direct, indirect and trust- based control mechanisms, which change over time within investments due to context-specific triggers. Two triggers emerging particularly strong from the data were (i) a shift of the angel's perception of the entrepreneur's ability, and (ii) the entrance of new investors. We theorize on these findings and derive seven novel propositions.