Business angels in life science: Deciding the value of start-ups

Abstract

Although research in business angels investment process is increasingly catching the attention of scholars, how business angels establish the value of start-ups is relatively unexplored. Furthermore literature on business angels investment process has never focused on analysing angel investors within a specific industry. Therefore, the purpose of this study is to explore the business angels’ investment process in life sciences and analyse how they value start-ups. An exploratory multiple case study was carried out in order to gain understanding on the business angels investment process and their approach to valuation of life-sciences start-ups. Semi-structured interviews were done to a total of 6 business angels who invests in life-sciences start-ups in Norway. The findings suggest that the most important criteria for business angels investing in life science are the team, the technology, the intellectual property and the upside of the investment. In addition, business angels rely on their experience in order to assess the investment criteria, pointing towards the investment process being subjective and heterogenous. Regarding valuation this study has found that business angels investing in life science start-ups do not use valuation techniques. The main reasons are the lack of trust in the reliability of valuation models and the perception that they are too complex. Instead of using valuation techniques business angels use the upside of the investment as reference to determine what should be the share value to obtain the returns they expect. This study contributes to the overall business angels research literature by confirming some of the findings of previous studies and by pointing towards new lines of research that can increase the overall knowledge about this topic.