Which signals matter most? A meta-analytic study of early-stage investment decisions

Abstract

One Size Fits None: Tailoring Your Pitch for Investor Success.

Look at almost any entrepreneur's funding pitch and you see a template of information most investors would expect – what technology their venture has, the entrepreneur's prior experience, the social networks they leverage, and their passion for the idea and venture. But does this “one size fits all approach” work equally well in securing the funding they need? Through our study of over 100 published papers reflecting millions of investment decisions, we find that the answer is no; instead, different types of investors prioritize different kinds of information – and these differences drastically change their funding decisions.

For early-stage entrepreneurs who seek funding to launch and grow their businesses, it's important to understand that while all investors care about an entrepreneur's human capital (i.e., their education and experience), what impresses one type of investor might discourage another. For instance, angel investors and reward crowdfunders invest when they see displays of positive affect – such as passion. Not only that, but angels value passion as much as human capital. Meanwhile, venture capitalists often view these displays negatively, preferring concrete evidence of an entrepreneur's social connections and a venture's technology instead. These differences occur among crowdfunders as well – whereas equity crowdfunders value the entrepreneur's human capital but not their social network, reward crowdfunders prioritize the entrepreneur's social network, but value it substantially less than displays of passion. Our analysis also reveals research gaps – there is an overemphasis on crowdfunders compared to angel investors and venture capitalists, and stark differences in funding decisions depending on whether the decision is real or experimental.

The implications are clear: when pitching to a particular investor, it's important for entrepreneurs to tailor communication to emphasize what that investor values most. This targeted approach doesn't just boost the chances of securing funding—it maximizes the effectiveness of your overall fundraising efforts.