Social Ties in Venture Finance

“Personal relationships are the key factor in accessing finance”, stated Dr. Andrea Moro. The Cranfield University professor just conducted a study together with Daniela Maresch and Matthias Fink (both Johannes Kepler University) about the relationship between investors and small to mid-sized enterprises.

Reason enough for the Business Angel Institute to invite the Italian-born scholar for a keynote to Vienna. Last Thursday Dr. Moro presented his research findings at the Vienna University of Economics and Business and over 50 guests joined the keynote. The research team of the study proved that business angels test the candidates trustworthiness during the due diligence process by checking if something has been hidden or has been window dressed. Trust is very important for the decision whether to invest or not. Even for credit from a bank, the loan manager’s trust in the firms’ managers increases the amount of credit provided and reduces the interest rate charged to the firm.

So what can founders do to gain trust? Simply being open to investors and giving them all the information they need! Many founders are not informing proactively because they are concerned about the risk of being adversely affected by accidentally leaking information or by the fact that new information can change the financing decision of the providers of funds. But almost in every case hidden information finds its way to the investor anyway and once the trust is gone the money will follow.

Another very interesting finding is the role of gender for access to credit. Gender is often said to influence the credit access, but in fact, banks in Europe (13 countries examined) do not discriminate women in granting credit. However women tend to discriminate themselves as they are more likely than man not to file for a loan because they expect to be rejected. This finding raised a lot of questions from the audience. For example Venionaire CEO and Business Angel Institute co-founder Berthold Baurek-Karlic asked if women shouldn’t get even more credit than men, given that they are already more selective in applying.

The Business Angel Institute is happy to have furthered the discussion about the role of investors in an international context. You can read more insights about this topic in a interview with Andrea Moro (in German) by Margaret Childs for the Austrian newspaper “Die Presse”.

Pictures by Jakob Knabel. See all pictures on our Facebook page.