How does entrepreneurial activity affect the supply of informal investors?

This paper examines the prevalence and the determinants of informal entrepreneurial investment activity (including investors in firms of family and friends, and business angels), using a dataset of more than 175,000 individuals including some 4000 informal investors - in 28 highly developed countries over the period 2002-04. We distinguish between micro-level and macro-level determinants. The results uncover a positive virtuous circle where the demand for informal investment tends to generate its own supply as a result of micro and macro factors. Our results also suggest that higher levels of entrepreneurial activity at the country level increase the probability that venture capital and informal investment work in tandem with one another as complements rather than substitutes. Overall, we find that entrepreneurial activity whether ongoing or having resulted in exit appears to boost the supply of informal investors. This effect applies to both friends and family (F&F) and business angel investor types.