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The business angel phenomenon has become ubiquitous. Relatively unheard of in the UK just 25 years ago, when my colleague and I began research in the area, angels now invest more than £750m in Britain’s start-up and early stage firms every year.

They are the main source of venture capital for new pre-profit enterprises. Yet they typically proceed with less than one in 100 investment opportunities. The question is, why?

Working with Donald Smith of the Discovery Investment Fund, we recently conducted an experiment with groups of real business angels at different stages in their careers, to explore what they look for in an investment.

We gave each a case study of a real healthcare start-up seeking £500,000 ($750,000) in seed finance, then asked them consider up the opportunity using their usual process and talk us through their decision.

The first thing that struck us was the lack of difference between groups. Regardless of experience 75% rejected the opportunity outright, with just one in four showing sufficient interest in learning more, or meeting the entrepreneur.

It became clear their decisions were based to a large extent on their ‘gut instinct’, and how the opportunity stacked-up against their investment philosophy – certain key criteria each opportunity had to fulfil.

These criteria were broadly the same for every investor. Although how they prioritised them differed.

More inexperienced angels placed more stock in financial structure and revenue projections to come to a conclusion. Although the ‘people element’ and faith in the entrepreneur was also a key driver.

While those with more investments under their belt prioritised ‘investor fit’ – the compatibility of the business, its stage and sector with their own expertise and network – to make their decision.

As a veteran angel once explained to me, many experienced investors develop decision-making shortcuts over time to enable them to quickly ‘screen’ the sheer number of opportunities they are presented. Which for many means actively looking for reasons not to invest.

In this particular case, they’d developed a ‘three-strikes and out’ rule. So if the business didn’t fit their portfolio, questions were raised about the entrepreneurial team’s credibility or they had reservations about the technology, product or market they wouldn’t take the conversation any further.

But getting past the screening stage is just part of the process. Contrary to its depiction in ‘Dragons’ Den’, the path to securing venture capital isn’t quick or simple. A good idea, smooth pitch and easy access to figures might get over the first hurdle, but the investment can still fall flat when business angels come to carry out due diligence.

For entrepreneurs, the lesson is simple. Do your homework.

An experienced investor with the right connections and sector knowledge can mean the difference between success and failure. But they will only invest in opportunities which are watertight and fit their priorities.

If they can get the financials right, it may be easier for some start-ups to land a less experienced investor who’s hungry enough to look past any issues and has the time to be hands-on with the business.

For government, investment advisors and researchers like myself, the challenge is raising awareness. We need to ensure our start-ups and early stage companies understand the differences in what investors look for, and how to approach them.

If we can get that right, we can improve investor readiness and unlock the significant economic and social potential of even more of the UK’s entrepreneurs.

Richard T. Harrison is Chair in Entrepreneurship and Innovation

His paper '' is published in Entrepreneurship & Regional Development: An International Journal.

He will share insights from his research career at the this week.