Business Today - - THE HUB -

Trust beats com­pe­tence. In a sec­ond study, Balachandra worked with a Cal­i­for­nia-based net­work of an­gel in­vestors who gather monthly to hear 20-minute pitches from start-ups. Im­me­di­ately after each pitch, the in­vestors filled out de­tailed sur­veys about their re­ac­tions and in­di­cated whether they wanted to send the com­pany through to due dili­gence (the next step be­fore in­vest­ing). The re­sults showed that in­ter­est in a start-up was driven less by judg­ments that the founder was com­pe­tent than by per­cep­tions about char­ac­ter and trust­wor­thi­ness. Balachandra says that this makes sense: A CEO who lacks a skill-based com­pe­tency, such as a fi­nan­cial or tech­ni­cal back­ground, can over­come that through train­ing or by hir­ing the right com­ple­men­tary tal­ent, but char­ac­ter is less mal­leable. And be­cause an­gel in­vestors of­ten work closely for sev­eral years with en­trepreneurs on highly risky ven­tures, they seek ev­i­dence that their new part­ners will be­have in honest, straight­for­ward ways that don’t heighten the risks. In fact, the re­search showed that en­trepreneurs who pro­jected trust­wor­thi­ness in­creased their odds of be­ing funded by 10 per cent. Coach­a­bil­ity mat­ters. Par­tic­u­larly among an­gel in­vestors, who get in­volved ear­lier than tra­di­tional VCs do, de­ci­sions aren’t driven only by po­ten­tial re­turns; they are driven by ego as well. Most an­gel in­vestors are ex­pe­ri­enced en­trepreneurs who want to be hands-on men­tors, so they pre­fer in­vest­ments where they can add value. For that to hap­pen, a founder must be re­cep­tive to feed­back and have the po­ten­tial to be a good pro­tégé.

Balachandra reached this con­clu­sion by con­duct­ing sur­veys and eval­u­at­ing video ses­sions with the same Cal­i­for­nia in­vestors’ net­work. Coders ex­am­ined the videos for be­hav­iours, such as nod­ding and smil­ing in re­sponse to ques­tions, in­di­cat­ing that founders were open to ideas. When anal­y­sis and sur­vey re­sults in­di­cated that they were, and when the in­vestor was ex­pe­ri­enced in the rel­e­vant in­dus­try – giv­ing him or her knowl­edge that could add value – the com­pany was more likely to move on to due dili­gence.

Gen­der stereo­types

play a role. In Balachandra’s first job in ven­ture cap­i­tal, she rarely en­coun­tered other women, whether among VCs or among en­trepreneurs; in fact, she says, 94 per cent of ven­ture cap­i­tal­ists are male. (She then worked at an allfe­male firm that fo­cused on fund­ing start-ups headed by women.) In her re­search, she and her col­leagues used videos from the MIT com­pe­ti­tion to test the per­cep­tion that VCs are bi­ased against fe­male en­trepreneurs. Coders noted whether the pre­sen­ter was male or fe­male and then mea­sured whether he or she ex­hib­ited stereo­typ­i­cally mas­cu­line be­hav­iours (such as force­ful­ness, dom­i­nance, ag­gres­sive­ness, and as­sertive­ness) or stereo­typ­i­cally fe­male ones (warmth, sen­si­tiv­ity, ex­pres­sive­ness, and emo­tion­al­ity). The anal­y­sis re­vealed that al­though gen­der alone didn’t in­flu­ence suc­cess, peo­ple with a high de­gree of stereo­typ­i­cally fe­male be­hav­iour were less likely than oth­ers to suc­ceed at pitch­ing. “The study shows that VCs are bi­ased against fem­i­nin­ity,” Balachandra says. “They don’t want to see par­tic­u­lar be­hav­iours, so if you’re overly emo­tional or ex­pres­sive, you should con­sider prac­tic­ing to avoid those things.”

The most im­por­tant take­away for en­trepreneurs is this: You should ap­proach the pitch­ing process less as a for­mal pre­sen­ta­tion and more as an im­pro­vi­sa­tional con­ver­sa­tion in which at­ti­tude and mind­set mat­ter more than busi­ness fun­da­men­tals. Lis­ten hard to the ques­tions you’re asked, and be thought­ful in your re­sponses. If you don’t know some­thing, of­fer to find out – or ask the in­vestor what he or she thinks. Don’t re­act de­fen­sively to crit­i­cal ques­tions. And in­stead of ob­sess­ing over the specifics of your pitch deck, Balachandra ad­vises, “think about be­ing calm, cool, and open to feed­back.”

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