This paper aims at providing evidence on the activity of business angels, using a unique dataset gathered during the five-year time period 2007-2011 with the support of IBAN (Italian Business Angels Network). In particular, the paper studies how characteristics of the investor and of the invested firm are correlated with returns, thus extending to the informal venture capital market research areas and methodologies widely applied in theoretical contributions dealing with the formal venture capital market. While, our descriptive analysis confirms the growing relevance of the relatively unknown and minimally regulated segment of the capital markets represented by the informal venture capital, given business angels' capability to fill the equity funding gap between demand for financial resources by start-up companies and supply of early stage equity capital, the aim of the econometric analysis is to investigate the returns on business angels' investments and their major determinants, making reference to an original set of independent variables (industry, exit strategy, experience, holding period, rejection rate, year of divestiture). Furthermore, while previous empirical studies hypothesized linear relationships between the explanatory variables and the performance of informal venture capitalists' investments, this work tests different functional forms, both linear and non-linear.The major results achieved through the empirical analysis are the following: 1) differently from previous literature, the relationship between experience and IRR is non-linear and significant; 2) the widely accepted expectation that investments with a short holding period (below three years) earn a lower IRR is confirmed, for the first time, by quantitative data; 3) a new variable, rejection rate, is put into the model and its logarithmic impact on business angels' performance is positive and significant. Finally, the outcomes of the empirical analysis performed in this study allow the identification of new and concrete insights into possible policy interventions aimed at stimulating the informal venture capital industry and, therefore, entrepreneurship inside the economic system
