Business Angel Syndication and the Evolution of Risk Capital in a Small Market Economy: Evidence from Scotland

In this paper, we examine the evolution of risk capital markets in a small market economy, with particular reference to business angel syndication. Scotland provides a valuable case, where the number of business angel syndicates (BAS) has grown from 3 to 18 between 2001 and 2010, the most radical shift in market organisation of any region in Europe. Findings suggest that a narrow range of focused but integrated public policies can be very effective in risk capital ‘capacity building’. Results suggest that syndication generates larger investment deals and more follow‐on investment but results in less new investments, fewer exits and an ‘equity gap’ in the lower end of the market, suggesting the need for ongoing formation of new BAS and greater emphasis on investment exits.