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Investors Can Be Greatly Influenced By Enthusiastic Startup Pitches, According to Yale Study
The Lure of an Enthusiast Startup Pitch
Investors can be greatly influenced by enthusiastic startup pitches, regardless of the strength of the business plan, according to a new study from Yale's School of Management ("SOM"). The study, coauthored by Song Ma, an assistant professor of finance at SOM, and Allen Hu, a doctoral candidate at SOM, is helping identify areas where human biases may affect economic decision making.
Ma and Hu studied over 1,100 pitch videos, and used machine learning technology and algorithms to consistently analyze the "visual", "vocal", and "verbal" dimensions to determine each video's overall enthusiasm.
"The researchers found people overwhelmingly—and incorrectly—associated positive presentations with stronger performance." - Yale Insights
The Researchers Found That:
Teams that looked happier/positive were 17% more likely to receive funding.
Teams sounding more enthusiastic were 27% more likely to receive funding.
Teams with warmer/more engaging language were more likely to be funded.
Teams that discussed their own ability or competitiveness were penalized.
Overall, an above-average Pitch Factor increased investment likelihood by 35%.
For teams composed entirely of women, investment decisions were 7x more sensitive to the performance of the pitch.
For teams comprising both genders, the performance of the male appeared to drive investment decisions, suggesting that women are simply ignored when they present alongside men.
Implications and Takeaways For investors, the takeaway is a greater sense of self-awareness when it comes to presentation bias. It also calls for putting more stock into the business plan over the presentation. Ma suggests exploring additional ways in which machine learning and algorithms can aid in accounting for these biases. Another solution Ma proposes, is bringing a diverse team with different viewpoints to the table, which could potentially cancel out certain biases. “This interaction bias is very important" says Ma, "and we should look for ways to reduce or counteract it.” For more on the study, read the full Yale article here: A Passionate Startup Pitch Is Powerful—But Can Be Misleading
This is not a solicitation or offer to buy or sell securities. There is no guarantee that any specific outcome will be achieved.
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