David Storey, of Warwick University's Business School, contends that, over the course of a decade, 4 per cent of the businesses which start up will end up producing 50 per cent of the jobs created.
A critical issue for these vibrant young firms is finding funding. Once entrepreneurs have exceeded the limit of their own supplies of funds (including those of family and friends), there are three principal external sources of funding available: formal sources such as banks; venture capital companies; and informal investors, often referred to as business angels.
Of these sources, banks and venture capital companies have moved away from providing external finance to entrepreneurs. Most successful start- up ventures find their funds in an area of the economy which is less well known, the business angel sector.
It is important for entrepreneurs to understand the six basic types of business angel because they constitute the most attractive source of funds and critical management help for most entrepreneurs.
Entrepreneur angels: they are the most active and experienced informal investors and, as a result, represent a particularly appealing source of finance for the first-time entrepreneur.
Key points: entrepreneur angels are individuals who make frequent, large- scale investments in new and growing ventures - they are active and ready to go ahead if you can convince them of the potential of your venture; they are considerably wealthier than other individual angel types; they have been more entrepreneurial in their own business careers; though they invest principally for financial gain these angels are also attracted by the fun and satisfaction of making informal investments, and they often interact a great deal with the founders/managers of the organisations they invest in, making them an excellent source of inexpensive management consulting advice.
Corporate angels: these are companies which make angel-type investments.
Key points: corporate angels have corporate resources at their disposal; research shows that they invest greater levels of funds than most individual angel investors; they invest predominantly for financial gain.
Income-seeking angels: active individual investors who have made one or two low-level investments over the past three years.
Key points: income-seeking angels are well off, but they are not as wealthy as the other angel types; they make their investments both for financial gain and to generate a job and/or income for themselves.
Latent Angels: they are inactive angels who have made one or more informal investments in the past but who have remained inactive for at least the past three years.
Key points: latent angels are extremely wealthy, self-made private individuals, who have substantial funds available to invest and who are now interested in making informal investments; of all the angel types, latent angels are the most concerned with venture location; they cite the lack of suitable locally based proposals as having restricted their investment activity.
Virgin angels: they are that group of inactive investors who have not yet made an investment in an unquoted venture. Existing American and British research suggests that there are many more virgin angels than active angels.
Key points: virgin angels are private individuals who are looking to provide finance to new or growing businesses, with a view to creating a job or a regular income for themselves and to earn higher returns than those that are available on the stock market; virgin angels are not as wealthy as active business angels and have less funds available to invest; they do not cite this lack of funds as restricting their investment activity, but instead virgin angels point to an absence of suitable investment proposals.
Wealth-maximising angels: this group of active angel investors comprises wealthy private individuals who have made several investments in new and growing ventures.
Key point: wealth-maximising angels tend, not surprisingly, to be very wealthy though, without being quite as rich as Entrepreneur Angels, they make their investments primarily for financial gain.
Dr Moore is a fellow in strategy at Templeton College, Oxford University. He and Patrick Coveney are co-authors of `Business Angels: Securing Start- up Finance', which is published by John Wiley & Sons at pounds 34.95Reuse content