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Categorization of angel investments: an explorative analysis of risk reduction strategies in Finland

Recent studies have proposed that future research on business angel typologies should focus on individual investments rather than investors. This study is a response to this proposal. It suggests that investments can be divided into subgroups in accordance with the comprehensiveness of business angels' due diligence and the strength of their involvement in the ventures. The sample comprises 53 investments by Finnish business angels. Four investment categories were identified: (a) gambles; (b) conventional angel investments; (c) due diligence-driven investments; and (d) professionally safeguarded investments. These investments are compared with respect to the general characteristics of the investors and investments, investment criteria and general investment preferences and to the level of relationship-specific investments by entrepreneurs. The results point to several substantial differences between these groups. The study helps entrepreneurs to understand what they can expect from angel investments.