The size of the informal venture capital market in the United Kingdom

Despite its undoubted importance to the financing of entrepreneurial ventures, there are few reliable measures of the size of the informal venture capital market. This paper reviews three methods used to generate such estimates - market-based approaches, firm-based approaches and the capture-recapture approach - and develops an alternative approach that is based on scaling up from the visible segment of this market represented by business angel networks. This methodology is applied to provide the first formal estimate of the size of the informal venture capital market in the United Kingdom. Informal venture capital investment is shown to broadly equate to the amount of institutional venture capital provided to start-up and early stage ventures. Reflecting the smaller average size of investments in the informal venture capital market, however, eight times as many businesses raise finance from business angels than from institutional venture capital funds.