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Who should entrepreneurs turn to: Incubator or business angel? A literature review on entrepreneurial firm support

Bachelor thesis research by Jip Creemers

In June 2016 Jip Creemers graduated from the Tilburg School of Economics and Management at Tilburg University. He followed the BSc International Business Administration and wrote his bachelor thesis in the area of entrepreneurial firm support.

Entrepreneurial firms focus on profitability and growth by implementing proactive, innovative strategic practices which tend to have an increased risk. They differ from other small businesses, which are more conservative and serve as a manner for the owner to achieve a personal goal. When starting out, entrepreneurial firms might not possess the resources required to operate and grow as strong as desired. In that case they will need to find fitting external support for achieving their goals. 

External support for new businesses comes in different forms from a variety of organizations. These different forms of support might suit different types of businesses. This study will therefore compare the effectiveness of different types of support, by conducting a literature review. In light of this, the differences between incubators and business angels are examined.

Incubators are organizations founded to support emerging firms, by providing different resources to the incubated firm. There are multiple sorts of incubators, founded with different incentives, focused on a variety of firms and able to provide divers support. Which type of incubator will grant the best services to boost firm performance, depends on the type of business and its motivation.

Another way in which entrepreneurial firms might receive support is through private investors. These can be either formal or informal. One type of informal investor is a business angel; a wealthy individual who possesses relevant business experience and is able to provide financial investment, but also intangible support, for emerging companies. Because of these characteristics business angels are considered to be the ‘best practice’ of informal investment. An angel can act as a mentor, help acquire more assets, offer strategic advice and monitor the business. All these roles can be value adding for a firm, when required and activated.

In conclusion: the best type of support organization for an entrepreneurial firm is the one that offers the required support in a way that is preferred by the investee. An entrepreneurial firm should thoroughly investigate their needs and search for an investor who is able to fulfil these in a manner that is value adding for the firm.