As the economy grows and new technology platforms emerge, many angel investors have begun to move away from “home turf” investments — deals in industries close to their areas of expertise, so that they can capture more opportunities to garner superior returns in the future (Mason et al., 2016; Mitteness et al., 2016). Emerging research on factors that influence angel portfolio industry strategy finds that angel narcissism is positively related to portfolio industry diversification (Lien et al., 2022).
Although insightful, this research has not addressed how angel characteristics influence the structuring and design of investment portfolios nor the preferences for specific types of industries. Indeed, diversification is only one key decision in investment strategy, and investors must decide which types of industries to invest in (Buchner et al., 2017). For example, when advancing beyond “home turf” investment deals, why do some investors favor deals in capital-intensive industries or those that attract attention among investors? Investigating such choices of specific types of industries can provide important insight into angels’ overall portfolio strategies.
The purpose of this paper is to examine whether and when angel investor investment horizon influences their overall portfolio industry strategy. We focus on angel investment horizon, defined as “the ex ante expectation about the duration of time over which potential investments will generate productive returns” (Reilly et al., 2016: 1173). As angels design their investment portfolios and evaluate prospective ventures beyond their preferred industries, the time horizon of expected payoffs will determine their resource allocation and thus significantly drive their portfolio industry strategy.
Our baseline hypothesis is that angel investment horizon is negatively related to portfolio industry diversification. Angels with long investment horizons are patient and tend to conduct assiduous analyses that allow them to develop a clearer picture of the distant future. Such expertise is less likely to accrue, extend to, or reap long-term benefits when investments are scattered across multiple industries. In contrast, angels with short investment horizons are impatient for profit, they may be attracted to opportunities arising within industries that are outside their core expertise but hold the promise of quick returns.
We also investigate the impact of investment horizon on how angels select specific industries to extend their portfolio beyond their preferred industries. We focus on two industry characteristics: industry capital intensity — the financial capital required to start and run a business (Datta and Rajagopalan, 1998), and industry popularity — the level of investment activity in an industry (Zhang et al., 2017). We argue that when deviating from their preferred industries, angels with long investment horizons will opt for capital-intensive industries requiring more patient effort. In contrast, angels with short investment horizons favor deals in “hot” or “trending” industries that provide faster returns.
Finally, we propose that angel personal wealth moderates the effect of investment horizon on industry capital intensity and industry popularity. We argue that when angels have a lower level of personal wealth, the effects of angel investment horizon on industry capital intensity and industry popularity are stronger.
