The Non-Compensatory Relationship between Risk and Return in Business Angel Investment Decisions

Using observed interactions between entrepreneurs and business angels on the reality-TV show ‘Dragon’s Den’, we find that business angels use a non-compensatory decision making method when analyzing anticipated risk and return. This is consistent with our proposal that business angels use heuristics (short cuts) in order to conserve cognitive effort expended in the decision of whether or not to invest in ventures proposed to them by entrepreneurs. These results have furthered our understanding of how and when behavioral decision theory can inform real-life decision processes. In addition, the results have practical implication for entrepreneurs interested in pitching ideas for funding from business angels.