Procedia - Social and Behavioral Sciences 109 ( 2014 ) Ottavia a *

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1 Available online at ScienceDirect Procedia - Social and Behavioral Sciences 109 ( 2014 ) nd World Conference On Business, Economics And Management- WCBEM 2013 Taiwanese business angels investment in the core creative industries Ottavia a * a Institute of Creative Industries Design, National Cheng Kung University, Tainan 70101, Taiwan Abstract Creative industries have been acknowledged as the key driver of economic growth and capital investment is the fundamental component to develop businesses in creative industries. In practice, it is difficult for businesses in creative industries to access for fund from financial institutions; especially for start-up, young companies due to the barriers of evaluating the potential of intangible products and services; formal investment procedures and requirements. The study aims to illustrate the capital investment decision for start-up businesses from the business angels' perspective. It intends to reveal the underlying factors of capital investment decision and outline the capital investment phenomena in creative industries, taking visual arts as a case The Authors. Published by Elsevier Ltd. Open access under CC BY-NC-ND license. Selection and peer review under responsibility of Organizing Committee of BEM Keywords: Business angels, business start-up, capital investment, core creative industries, decision-making; 1. Introduction Historically speaking, wealthy influential people have been the benefactors to invest on the creative work of artists (Anderson, 1996). A few examples of this phenomenon can be observed from the relationships between Karl Marx and Friedrich Engels, Picasso and Gertrude Stein, or Michelangelo and Lorenzo de Medici. Their great artistic work would not be successfully transformed from intangible idea to tangible products without the benefactors financial support at the first place. These benefactors (also known as business angels, angel investors, angels, or patron) demonstrate the practice of capital investment in the core creative industries. The main objective of this study is to illustrate the capital investment decision criteria for businesses in the core creative industries from the business angels perspective using the quantitative and qualitative methods. The combination of these two methods was expected to bring a holistic view on the capital investment decision in businesses in the core creative industries. * Corresponding Author: Ottavia Ottavia. Tel.: address: kinner78@gmail.com The Authors. Published by Elsevier Ltd. Open access under CC BY-NC-ND license. Selection and peer review under responsibility of Organizing Committee of BEM doi: /j.sbspro

2 568 Ottavia / Procedia - Social and Behavioral Sciences 109 ( 2014 ) Literature review 2.1. Capital investment: A decision process Investment decisions are financial decisions, but they are strategic decisions as well (Mintzberg, Raisinghani, & Théorêt, 1976). It relates with how an implementation of an investment will open new possibilities and enhance the competitive position for the investor s own business Sources of capital investment for start-up businesses There are basically three major sources that entrepreneurs seek for when it comes to financial support the banks, venture capitalists and angel investors (Sohl & Hill, 2007). Banks tend to mitigate the risks by providing funds to businesses with certain track records and experience (Ottavia, Chuluunbaatar, Kung, & Luh, 2011) on the later stage of development. Venture capitalists tend to invest at a later stage of development (OECD, 2011). For start-up businesses, the possible source comes from business angels who invest equity capital for the high growth venture in early stage (Harrison & Mason, 2000). Since businesses creative industries are mostly project-based, entrepreneurs in creative industries need the seed financing to start and develop the new project. The project is unique and new, with highly uncertain outcome; hindering their applications for capital investment to venture capitalists and banks (Keane, Ryan, & Cunningham, 2005). Therefore, due to its informal and private nature of investment, business angels are the better options to seek for capital investment (Wong, Bhatia, & Freeman, 2009) Business Angels criteria of investment A series of interview were conducted to explore the current practices of business angels in Taiwan. Four interviewees who are experienced in creative industries projects investment were selected Chi Mei Culture Foundation, Tainan Culture and Tourism Association, an member of the judge committee of Chi Mei Arts Award; and Gale Arts Broking Co. All interviews showed consistent results and the evaluation criteria were clustered into artist s talent and originality (creativity); artist s commercial potential (marketability); confidence on artist s reliability (trustworthiness), and artist s commitment to their work (passion) Hypotheses development Passion may indicate how much an entrepreneur is committed to put time and effort to achieve their business goal (Chen, Yao, & Kotha, 2009), the drive, initiative, and tenacity (Bierly, Kessler, & Christensen, 2000), how entrepreneur will persist under difficulties, and the key ingredients to business survival and growth (Baum & Locke, 2004). From the business angels point of view, the higher the artist s passion, the more likely that the project/business will succeed, therefore the more benefits will come to the business angels. Hypothesis 1: passion is positively related to the business angels benefits. Trustworthiness is closely related to commitment to the business, willingness to put time and effort for the company s growth, assurance to fulfill investor s expectation, ability to cope with circumstances (Barrett, 1990; Coleshaw, 1989), credibility (Sudek, 2006/2007), integrity, stability, (Saunders & Allen, 2002),. In business angels mind, the higher the trustworthiness posed by the artist, the more likely that the project/business will succeed, therefore the more benefits will come to the business angels. Hypothesis 2: trustworthiness is positively related to the business angels perceived benefits. In creative production, the knowledge, skills, talents of the creative artists are transformed into the final result of creative product. The level of product creativity can be measured level of expertise of creative artists (Besemer & O'Quin, 1999; O'Quin & Besemer, 2006). From the business angels point of view, the level of expertise will influence the overall judgment over the success/failure of the project or business being funded, hence will influence the benefits for business angels.

3 Ottavia / Procedia - Social and Behavioral Sciences 109 ( 2014 ) Hypothesis 3: creativity is positively related to the business angels perceived benefits. Creative products are experience goods (Caves, 2000; Flew, 2002); consuming the work of a creative artist means to purchase an experiential consumption (Cunningham, 2004) a sensory experience. A successful work will stimulate people s mind and emotion, provide a memorable experience, leaving a strong impression on people s mind (Hultén, Broweus, & van Dijk, 2009) which will guarantee a high marketability for current and future work. From the business angels point of view, the higher the artist s marketability, the more likely that the project/business will succeed, the more benefits will come to the business angels. Hypothesis 4: marketability is positively related to the business angels benefits. 3. Methodology 3.1. Constructs and measurements Six main constructs illustrate the capital investment decision process in artist creative start-up (as shown in Figure 1). The framework used the perspective of business angels as the potential investors of artist creative start-up. KMO Measure and Bartlett s Test of Sphericity were conducted. Data adequacy was confirmed; the number of observation was adequate proven by the value of KMO test that are greater than 0.5 for all constructs ( ) and Bartlett s test with significance of less than All variables have factor loadings between to their respective factors. Cross-factor loading were less than 0.3, and Cronbach α between passion trustworthiness creativity Investor s benefits marketability Figure 1. The research framework 3.2. Data collection & participants Respondents were shown 9 (nine) examples of artwork from one artist. Questions on capital investment criteria and willingness to invest were presented after the screening questions, and ended with respondents demographic information in the third section. The target respondents of the study were business angels in Taiwan. Business angels were represented by the samples 159 respondents, with almost equal proportion of gender (57.86% male and 42.14% female), employment status (42.14% self-employed, 57.86% employee). A larger proportion of respondents have the income bracket of more than 60,000 TWD per month; above the average Taiwanese citizen s monthly income (NSROC, 2010). 4. The results The multiple linear regression result showed a strong relationship investor s evaluation on artist s passion, trustworthiness, creativity, and marketability to investor s benefits (Adjusted R2= 0.473, F value= ***). Table 1 shows the complete results of regression. creativity was seen as the most influential factor, which affects business angels perception on the benefits that they will receive (β value of 0.346*** and P value of 0.000), hence proving hypothesis 3. marketability was seen as the second most influential factor which affects business angels perception on the benefits that they will receive (β value of 0.317*** and P value of 0.000), hence

4 570 Ottavia / Procedia - Social and Behavioral Sciences 109 ( 2014 ) proving hypothesis 4. trustworthiness was seen as the third most influential factor which affects business angels perception on the benefits that they will receive (β value of 0.261** and P value of 0.025), hence proving hypothesis 2. passion was seen as the least yet influential factor which affects business angels perception on the benefits that they will receive (β value of 0.192** and P value of 0.047), hence proving hypothesis 1. Table 1. The relationship between investor s evaluation criteria on artist and investor s benefits Independent factors Dependent Factors Investor's Benefit β VIF Investor's evaluation on artist's: Passion (fpassion) 0.192** (0.047) Trustworthiness (ftrust) 0.261** (0.025) Creativity (Crea_combined) 0.346*** (0.000) Marketability (fmarket) 0.317*** (0.001) R Adjusted R F value *** (0.000) D-W Conclusion This study was one of the first attempts to formulate the capital investment decision criteria for business start-ups in the core creative industries from the business angels perspective. The extensive interviews retrieved the insights from the business angels and formulated the common set of evaluation criteria to evaluate a business start-up in visual arts; namely artist s passion, trustworthiness, creativity, and marketability. Using the quantitative method, this study has collected sufficient number of responses from the real investors who are experienced in the field and revealed that all criteria were significant and business angels put different priorities when evaluating business startups to invest in the following order artist s creativity, artist s marketability, artist s trustworthiness, and artist s passion. Therefore, artists who want to seek for investment from business angels should demonstrate these qualities to attract the business angels to invest. This study illustrated the general picture of Taiwanese business angels investment decision making for business start-ups in visual arts. The formulated criteria of decision making can be considered as valid and reliable measurement tools to evaluate investment opportunities in creative industries. References Anderson, J. (1996). Rewriting the history of art patronage. Renaissance Studies, 10(2), Barrett, G. R. (1990). What bankers want to know before granting a small business loan. Journal of Accountancy, 169(4), Baum, J. R., & Locke, E. A. (2004). The relationship of entrepreneurial traits, skill, and motivation to subsequent venture growth. Journal of Applied Psychology, 89(4), Besemer, S. P., & O'Quin, K. (1999). Confirming the three-factor Creative Product Analysis Matrix Model in an American sample. Creativity Research Journal, 12(4), Bierly, P. E., Kessler, E. H., & Christensen, E. W. (2000). Organizational learning, knowledge and wisdom. Journal of Organizational Change Management, 13(6), Caves, R. (2000). Creative industries. Cambridge: Harvard University Press. Chen, X.-P., Yao, X. I. N., & Kotha, S. (2009). Entrepreneur passion and preparedness in business plan presentations: A persuasion analysis of venture capitalists' funding decisions. Academy of Management Journal, 52(1), Coleshaw, J. (1989). Credit analysis: How to measure and manage credit risk. Cambridge: Woodhead-Faulkner Limited. Cunningham, S. (2004). The creative industries after cultural policy. International Journal of Cultural Studies, 7(1),

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