Why Some Countries Attract More Micro-Angel Investors: How Opportunity, Law, and Trust Work Together

What is it about?

This study examines how national institutions and entrepreneurial opportunity availability jointly shape micro-angel investment activity—small-scale investments by individuals in early ventures. Drawing from international business and institutional theory, the authors explore how both formal institutions, such as legal protections, and informal institutions, such as social connectedness, help explain cross-country differences in such investments. The study also considers how these institutional conditions interact with opportunity availability to influence investor behavior. Using cross-national data, the study shows that countries with more business opportunities, stronger legal systems, and deeper social embeddedness have higher levels of micro-angel investment. Legal protection and social ties both strengthen the link between opportunity availability and investment by boosting confidence and willingness to fund new ventures. However, a substitution effect appears: when legal protections are strong, social connectedness matters less, and vice versa—each can compensate for the other. For policymakers, these results suggest that fostering micro-angel investment requires both vibrant entrepreneurial opportunities and supportive institutional environments. Strengthening property rights and investor protections can encourage financial participation, while building social networks and trust among citizens can lower risk perceptions and stimulate informal investing, particularly in countries where legal institutions are weaker.

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Photo by Markus Winkler on Unsplash

Photo by Markus Winkler on Unsplash

Why is it important?

This study is among the first to explain cross-country variations in micro-angel investment by integrating the effects of both formal and informal institutions. It contributes to understanding how national systems of law and trust shape entrepreneurial finance and interact with opportunity structures. The discovery that legal protection and social embeddedness can substitute for one another adds nuance to how nations can design complementary or compensatory strategies to stimulate early-stage investment. Its timeliness lies in its relevance to global efforts to promote entrepreneurial ecosystems. As governments seek to broaden participation in early venture funding, this research provides evidence-based insight into how institutional strength—formal or social—can be leveraged to unlock small-scale private investment and foster innovation-driven growth across diverse economies.