INTERNATIONAL PERSPECTIVES ON THE SUPPLY OF INFORMAL VENTURE CAPITAL zyxwvutsrq RICHARD T. HARRISON University of Ulster, U.K. COLIN M. MASON University of Southampton, U.K. zyxwvutsrqp EXECUTIVE SUMMARY Despite major changes in the number and range of sources of jnance for new and small ventures in the United Kingdom in recent years, there continues to be a shortage of risk capital for ventures actively seeking external equity jnance. In the United States the informal venture capital market plays a major role in jlling this equity gap, particularly in the early stages of venture development. However, there is little comparable information on the size of the informal venture capital pool in the United Kingdom or other European economies, despite recent recognition that the apparent underdevelopment of this market in the U.K. represents a major barrier to the development and growth of new ventures. This paper, therefore, presents the jrst analysis of the informal venture capital market in the U.K. and compares the characteristics and attitudes of U.K. informal investors with those in the U.S. The data reported in this paper have been obtained from a combination of postal survey and snowball sample techniques that generated useable information from 86 informal investors. Informal investors are playing an important role in venture financing in the U.K. in three ways: they make small scale investments in new and early stage ventures, where the equity gap is most signijcant; they are more permissive in their financing decisions than the formal venture capital industry in terms of having lower rejection rates, longer exit horizons, and lower target rates of return; and they invest locally and can thereby close the regional equity gap arising from the overconcentration of venture capital investment in the core South-East region in the U.K. In terms of demographics, U.K. informal investors share many of the characteristics of North American informal investors: they are predominantly male, with an entrepreneurial background, Address correspondence to Professor R.T. Harrison, Centre for Executive Development, University of Ulster at Jordanstown, Newtownabbey, Co Antrim BT37 OQB, N. Ireland. The research on which this paper is based forms part of the Economic and Social Research Council’s Small Business Research Initiative. The authors wish to acknowledge the financial contributions from the ESRC, Barclays Bank, Commission of the European Communities (DGXXIII), Department of Employment, the Rural Development Commission, and the valuable research assistance of Jennifer Chaloner. Journal of Business Venturing 7, 459-475 0 1992 Elsevier Science Publishing Co., Inc., 655 Avenue of tbe Americas, New York, NY 10010 459