ABSTRACT
This chapter describes the financing gap that small firms encounter after they exhaust easily accessed funds, but before they can seek finance in a public capital raising. It focuses on international research carried out on informal angel finance, which is the least well understood part of the market. The chapter describes the contracts between entrepreneurs and investors. It explains how formal contracts are supplemented by informal obligations, governance processes, and by affective relations, such as trust. The chapter studies ethical issues in detail by showing some of the difficulties associated with institutionalising ethics in small firms. It addresses policy reform within small firm finance markets and the legal system. The chapter examines specific links with policy and regulation. It provides international contrasts, and link back to the finance gap by discussing evidence on the relationship between policy instruments and entrepreneurial innovation. The chapter also presents an overview on the key concepts discussed in this book.
