STUDY | This is the factor that makes you a dream investor

Want to be the entrepreneurs’ first choice? A new research study reveals what determines whether you manage to secure the best investments.

We know quite a lot about how investors assess entrepreneurs, while less attention has been paid to how entrepreneurs assess investors.

In a new US study based on two studies – an analysis of 677 entrepreneurs’ assessments of 408 investors and a controlled experiment with 481 entrepreneurs. The conclusion is clear: entrepreneurs perceive investors with an entrepreneurial background as more empathetic, and it is precisely perceived empathy that influences how investors are assessed.

Shared experience signals empathy

The first study found that investors with an entrepreneurial background were three times more likely to be perceived as empathetic compared to investors without such a background. They also scored higher overall. The second study, in which entrepreneurs were randomly assigned to read fictitious but realistic investor profiles, confirmed the correlation: just knowing that an investor had entrepreneurial experience led to more positive ratings.

Empathy thus acts as a kind of bridge between investors and entrepreneurs. The study shows that if entrepreneurs feel understood in both their thoughts and feelings, it affects the assessment of the investor. The cognitive aspect – that investors understand how the entrepreneur thinks – seems to weigh most heavily.

The results underline that an investor’s entrepreneurial background becomes a sign that they can relate to the uncertainty and pressure of building a company.

It is not that investors with an entrepreneurial background perform better, but that the person has the ability to see the situation from the entrepreneur’s perspective. This in turn creates a trusting relationship and influences the entrepreneurs’ willingness to cooperate in the long term.

Be open about your background

The researchers in the study emphasize that investors often underestimate the value of sharing their entrepreneurial experience. Many assume that their financial skills are the most important, but the results indicate that entrepreneurs value a different type of capital: experience of the investor’s own entrepreneurial journey.

Therefore, the researchers’ advice to investors is to highlight their entrepreneurial background more actively in meetings and presentations – because shared experience can create a relational competitive advantage.

More about the article and author
The article Seeing Both Sides: How Shared Experience Can Improve Entrepreneur Evaluations of Investors Through Perceived Empathy is published in the sceientific journal Organization Science. The author is Dana Kanze at Georgetown University, USA.