Agency and altruism theory are combined to develop a framework explaining expected returns on informal investments in fifty-four countries that participated in GEM in either 2007 or 2008 or both. The chapter finds evidence that altruism affects expected returns. Also, the chapter finds that as the relationship between investor and entrepreneur becomes more distant, the influence of altruism decreases and agency concerns increase to the point where they dominate, as in the case of formal investments by professional venture capitalists. The chapter also finds evidence that gender and age influence expected returns on informal investments and that entrepreneurs expected higher returns from their own businesses than from their investments in the businesses of others.
Keywords: entrepreneurship; altruism; informal investors; angel investors; GEM; informal financing; business angels
Chapter. 8486 words. Illustrated.
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