Characteristics and determinants of informal investment in Singapore

Abstract

Since Wetzel (1982, 1983) identified the business angel as a primary source of risk capital, there has been increased interest in the role of informal investors in the formation of new business ventures in the developed OECD countries. However, there remains little known about informal investors in developing or newly industrialized economies such as Singapore. Based on data collected using the Global Entrepreneurship Monitor (GEM) methodology (Reynolds et al., 2002), this paper examines the characteristics of informal investors in Singapore, and analyses the key determinant factors that differentiate individuals who become informal investors from those who do not make informal investments. In particular, we examine if these factors differ depending on the relationship between the investor and entrepreneur. We also investigate the differences between determinants of higher and lower value investment propensities. The findings reveal that knowing entrepreneurs personally was the factor with the strongest influence on informal investing propensity in Singapore. Other findings suggest that informal investing propensity in Singapore is less influenced by demographic factors and income, and more by prior entrepreneurial experience and self-perceived skills with new business formation.