‘All for one and one for all?’ Business angel groups as collective action

Angel investing has been transformed over the past two decades into a collective endeavour as angels have increasingly organised themselves into professionally-managed angel groups. A key role of the manager, typically termed the gatekeeper, is to undertake the initial screening of investment opportunities that the group attracts. We examine this activity through the lens of collective action using principal-agent theory to understand whether the gatekeeper (agent) acts in the best interests of the members (principal). Our study examines the gatekeeper’s approach to initial screening. Two different data gathering techniques were used to collect evidence from 21 gatekeepers representing 19 angel groups. First, verbal protocol analysis, which involved gatekeepers ‘thinking out loud’ as they undertook the initial screening of a potential funding opportunity, indicated that the majority did consider the shared interests of the members of the group, although in many cases this comprised only a small proportion of their overall comments. This could indicate the potential for moral hazard; however, the interview questions demonstrate that the gatekeepers focus on actions which increase the benefits for members. This requires that gatekeepers have a strong social relationship with group members to match their investment preferences with the types of investment opportunities that they ‘screen in’.