In the startup pitch every venture capital fund is looking at firms that can grow, turn a profit and ultimately realise value for the investors. The considerations of a successful pitch include the market fit, the company’s business plan, as well as the quality and depth of experience of the leadership team.
In this study the authors Ma and Hu investigated the thesis that investors were often swayed to startup ideas when the presenters appeared enthusiastic, warm and excited even though these qualities are in most cases not likely to contribute to the success of the venture.
Ma and Hu reviewed more than 1100 pitches using machine learning to review and score the visual, vocal and verbal aspects of each pitch. they assessed things like how positive did Team A look? How energetic did Team B sound? How warm was the diction of Team C? The combined rating provided a Pitch ‘Positivity’ Factor that can help understand how human biases affect economic decision making.
“The researchers found that teams that looked happier and more positive were 17% more likely to receive funding; teams that sounded more enthusiastic were 27% more likely to receive funding; and teams that used warmer and more engaging language were also more likely to be funded. (On the other hand, teams that discussed their own ability or competitiveness were penalized.) Overall, an above-average Pitch Factor increased the likelihood of investment by 35%.”Song Ma
For founders and entrepreneurs the implications of these research findings are clear – an upbeat pitch has a much higher chance of success. For investors the consideration is more challenging, how to better identify and control biases that may slip below recognition.
When the pitch team team was made up entirely of women the result was was even more pronounced with investment decisions being seven times more sensitive to the performance of the pitch, the researchers speculate that possibly this is because (male?) investors rewarded female stereotypes who were warm and positive and avoided those who were not.
you can hear more about VC pitches on the iTHINK podcast interview with Mark Sherman.
“It’s possible that investors incorrectly believe that more enthusiastic people actually have higher-quality ideas. Or, it could be we simply like to be around people who are positive.”Song Ma
Synopsis of an article from Yale Insights A Passionate Startup Pitch Is Powerful—But Can Be Misleading by Song Ma Published: 14th October 2020 https://insights.som.yale.edu/insights/passionate-startup-pitch-is-powerful-but-can-be-misleading Human Interactions and Financial Investment: A Video-Based Approach by Allen Hu and Song Ma Published: 4th June 2020 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3583898