What determines the level of informal venture finance investment? Market clearing forces and gender effects

We undertake the first research to move analysis beyond estimating the propensity for a person to become an informal investor and onto the core concern which is the total volume of venture finance. We find that a 1 % increase in entrepreneurial activity increases the number of informal investors by 1.7 %. However, the average invested amount declines by 0.8 %, leading to a net positive total increase of about 0.9 %. This result indicates that, to a considerable extent, demand for informal investment creates its own supply. As a result, the research finds that market forces help solve finance constraints for new ventures and hence lessen the need for public policy intervention. This effect is stronger for males than females. Copyright Springer Science+Business Media New York 2014