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In recent years, most sectors have benefited from an explosion in the creation of startups in different entrepreneurial environments (Baporikar, 2015). In relation with the entrepreneurship, there is a growing interest in the role of informal investors in the creation of new and women entrepreneurs (Dzingirai & Baporikar, 2021; Baporikar & Akino, 2020). Hence, informal investors play a significant and critical role in the investment field. Apart from that informal investors promote entrepreneurship as they are a funding source especially for small and micro entrepreneurs (Baporikar, 2016; Baporikar 2021b). Hence understanding the factors that influence informal investors will enable in identifying the characteristics, which would aid the governments and regulators to promote different measures that help economic growth. Several studies (Davidsson et al. 1994; Storey 1994; Baporikar & Deshpande, 2020) have shown that entrepreneurial ventures are one of the main contributors to the creation of new jobs, and that the formation of new firms is important for regional development. However, in many countries there are indications that a shortage of risk capital in the institutional capital market could limit development of entrepreneurial ventures (Cressy and Olofsson 1996, Hughes 1996, Lumme et al. 1998).
A number of studies concerning informal investors have been carried out over the last two decades. One main conclusion from previous research has been that the informal venture capital market is very heterogeneous, and that classifications for informal investors are needed in order to more accurately depict the informal venture capital market. On the other hand, a number of informal investor studies have shown that there are imperfections in the informal venture capital market (Mason and Harrison 1991, Lumme et al. 1998). This is largely due to information inefficiencies in the market. Entrepreneurs are hampered because they cannot find a suitable informal investor, and informal investors find it difficult to identify interesting investment proposals. As a consequence, many informal investors report that they are not able to make as many investments as they want, and the entry barriers for many potential informal investors are too high (Freear et al. 1992, Lumme et al. 1998, Reitan and SoÈ rheim 2000). This suggests that if the appropriate private or public provisions and stimulants were in place, the number of informal investors, as well as the number of investments, would increase. However, there is the danger that policy initiatives will get ahead of our understanding of the informal venture capital market (Mason 1996).