When personality pays: observer rating of personality and financial success of equity crowdfunded startups

ABSTRACT

This study investigates the value of third-party ratings of personality in investor pitches for predicting the investment intention and successful equity crowdfunding of U.S.-based startups. Based on 1175 ratings of 100 randomly selected investor pitch videos, we find that not only do investors’ impressions of entrepreneurs Big Five personality traits predict investment intention but that several of these also predict entrepreneurs’ actual crowdfunding success (particularly: openness, conscientiousness and extraversion). The study contributes to our knowledge of the links between (perceived) individual-level traits of the entrepreneur and their ability to finance a venture, a key challenge in the early stages of startups.

KEYWORDS:

• Equity crowdfunding
• personality
• survey
• five-factor model
• venture finance
• information asymmetry

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. While one author received IRB training at a U.S. institution (anonymized for peer review) and we made an effort to conform to these guidelines, ethical approval for the survey was granted by the chair of the institute, as is common in Western Europe.

2. https://www.coe.int/en/web/common-european-framework-reference-languages

3. Also, if we run Model 7 (the full model with the Big Five based on the survey and investment intention as the DV), and replace the log-transformed funding amount actually achieved as the DV, we find that perceived openness (ß = .072, p = .022) and extraversion (ß = −.077, p = .006) based on the survey remain significant predictors of actual funding and that the effect directions of the Big Five remain the same for all but perceived agreeableness (ß = −.04, p = .179). Results are similar if we regress the number of investors in the campaign against the Big Five based on the survey ratings, with significant predictors being perceived openness (ß = .084, p = .01) and extraversion (ß = .081, p = .005), respectively.

4. From it we can see that when participants rated the entrepreneurs in the pitch video, they paid particular intention to whether or not they trusted them, perceived them as competent, serious, confident, friendly/likeable, based on their gut feelings and the success prospects for the company and product/idea; they also looked for professionalism and for innovativeness of the idea and potential of the market and business model. This is quite revealing about the pitches in that clearly the central criteria for making actual investment decisions are being transported in the video pitches: that is, they do capture key aspects of the campaign that would typically be included on the campaign page, albeit in a more compressed fashion.

5. Questionnaire-based on the Ten-Item-Personality-Inventory, the actual survey used the validated German TIPI-G version.

6. Scale inspired by.

Additional information

Funding

The work was supported by the Jürgen Manchot Stiftung.