Relationship between role of business angels and stages of startups: a resource dependency theory perspective

Abstract

There has been an impressive rise in the number of startup ventures in India. Despite this, a lot of startups face challenges to avail capital. Along with funding gaps, startups also face experiential gaps. Business Angels (BAs) cater to both gaps. In doing so, they offer financial and non-financial resources like mentoring, network access, market intelligence, etc., thereby creating resource dependency. Although the previous literature discusses the roles of BAs, it does not link it with the stages of the startup to understand how and why these roles of BAs change with the change in the stage of the startup. Using the theoretical lens of Resource Dependency Theory (RDT), the research first categorizes the roles of BAs into themes and dimensions. To understand how BAs' roles change with the stage of a startup, 15 founders and 15 startup founders were interviewed. These interviews were transcribed and manually coded to identify the role change. The research indicated that some roles of BAs have evolved in more recent times, e.g., ethical watchdog, motivator, and negotiator. The role of BAs shifts from provider of financial, human, and structural capital to provider of human, relational and social capital as the startup moves from the startup stage to the developmental stage. Similarly, when the startup progresses from the developmental stage to the growth stage, the role of BA changes to the provider of social and human capital. The research also discussed the factors leading to role change. Internal factors like startup characteristics, BAs association and involvement and background of BA were identified. External factor like the maturity of the ecosystem was identified. As the research is in the context of startups, it adds newer dimensions to RDT, which has traditionally been used in larger organizations. The study also indicates to the practitioners why it is essential to understand the stage of startup before plunging into making investments and similarly availing investment. Finally, the research also discusses propositions for future research to build upon and leaves the future researcher with questions and focus area to be researched.