Business angels as an alternative to financial support at the early stages of small businesses’ life cycle

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In the process of small business establishment and development, it is very important to understand both the financial needs of entrepreneurs and the main obstacles and difficulties arising in the way of financing. Alternative sources of financial support, along with traditional ones, create opportunities to increase funds, but the solution to the issue of their attraction should be based on modern effective methods and decision- making technologies. The article uses the decision tree method to determine the optimal alternative to financial support of small business at the early stages of the life cycle. The results highlight the importance of alternative source of resources for small business entities, namely business angels’ means. The empirical and statistical analysis confirms that access to alternative sources of financing for small businesses in EU countries is improving, while in Ukraine, informal financing is a rather new and underdeveloped area. Based on the analysis of the advantages of using the business angels’ funds, it was concluded that they need to implement their potential in small business of Ukraine. The results show that the decision tree method is an effective tool for deciding on the prioritization of a financial alternative to the small business, and is characterized by ease of use, forecast precision and problems solution novelty.

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    • Figure 1. Capital investors at the start-up, establishment and late stages of a SBE life cycle
    • Figure 2. Distribution of services provided by EU business angels in 2016 (percentage of the total number of business angels), %
    • Figure 3. Investment in the early stage of EU SBE life cycle, bln. of Euro/% in 2016
    • Figure 4. Statistics of project co-investment by EU business angels in 2014–2015 (percentage of the total number of business angels), %
    • Figure 5. Dynamics of angelic investment ratio in EU countries for 2014–2016
    • Figure 6. Dynamics of the number of ICI in Ukraine for 2007–2016 in terms of types, units
    • Figure 7. Decision tree algorithm for attracting an optimal source of SBE financial support at the early stages of development
    • Figure 8. Decision tree: choice of the priority source to form SBE financial support at the early stages of development
    • Table 1. Comparative analysis of venture capitalists and business angels
    • Table 2. Dynamics of investments of EU business angels in terms of their visible and invisible share in 2014–2016
    • Table 3. Dynamics of business angel investments in EU countries for 2007–2016, mln euros
    • Table 4. Data for decision tree construction