Business angel groups as collective action: an examination of the due diligence process

Abstract With the emergence of business angel groups, angel investing is increasingly an activity that is based on collective action. However, our understanding of the investment process of business angels is largely based on studies of angels who invest independently. This paper investigates the collective action practices of one UK business angel group – Henley Business Angels. We examine how the due diligence process is undertaken. This stage involves the verification of the information in the pitch and business plan and underpins the decision whether or not to make an investment. This stage in the investment process has attracted limited attention by researchers. We find that there is a lack of rigour in the due diligence that angels undertake. Further, the process involves limited collective action. Group members largely act on their own behalf in carrying out due diligence, generally investigating areas of interest or concern independently of other members. However, members typically do share and discuss information gleaned from their own due diligence process with other members in the group. Some members will also accept the due diligence of other members if it is outside of their own area of expertise or if they do not have the time to carry out the due diligence themselves.