As regular Shark Tank viewers know, an entrepreneur who won’t listen to feedback is likely to walk away without a deal as one irritated, ultra-high-net-worth investor after another declares, “I’m out.”
Those not convinced by anecdotal evidence or instinct might consider new academic research supporting the notion that entrepreneurs’ openness to feedback, along with their passion, is important to angel and venture capital investors.
A paper published in February in the Journal of Business Venturing indicates venture capitalists and angel investors value entrepreneurs’ passions both for the sphere related to their products or services and for entrepreneurship – and that willingness to take in feedback works in an entrepreneur’s favor.
“We provide evidence that investors find passion appealing and that openness to feedback further elevates this appeal, presumably by mitigating investors’ concerns that unrestrained passion will manifest as entrepreneurial ego, rigidity, or resistance to necessary input from the investor, the market, and other key stakeholders,” they write.
Being receptive to feedback may ensure a more comprehensive form of entrepreneurial decision-making that can channel passion’s motivational benefits toward positive venture outcomes, according to Benjamin Warnick, Washington State University assistant professor of entrepreneurship, and co-authors from other institutions.
“The finding also represents an important practical application for entrepreneurs searching for venture financing. While most textbooks on entrepreneurship tout the importance of passion among entrepreneurs … fewer discuss the importance of openness to feedback,” they write.
“Our results demonstrate that passionate entrepreneurs can maximize their appeal to investing audiences if they communicate that they also possess humility and a willingness to be coached.”
The researchers conducted a survey-based experiment involving 62 venture capitalists and angel investors from the western United States – mostly men who have founded at least one venture themselves.
They presented these investors with hypothetical profiles of entrepreneurs with attractive venture opportunities that were equal except for the characteristics of the entrepreneurs themselves, and provided information on each entrepreneur’s attributes.
The researchers find that:
-Venture capitalists and angel investors consider both “product passion,” or passion for activities related to the entrepreneur’s products or services, and “entrepreneurial passion” or “startup passion” in assessing funding potential.
-For angel investors and VCs, an entrepreneur’s openness to feedback enhances the appeal of both product and entrepreneurial passion.
-“Investors with more investing experience place greater emphasis on the combination of product passion and openness to feedback.”
-“Investors with more entrepreneurial experience emphasize the combination of entrepreneurial passion and openness to feedback.”
The study offers evidence that “an entrepreneur cannot be passionate in general,” and “must be passionate about some target in particular,” the authors write. “We argue that the target of an entrepreneur’s passion matters.”
Openness to feedback may influence different kinds of passions, both within an entrepreneur, the researchers say, and in how passion is perceived by relevant stakeholders.
They caution that extreme passion and excessive openness to feedback could translate into too much of a good thing, that entrepreneurs showing “extremely high levels of openness to feedback” – unlike the levels examined in the study – “may be perceived as lacking assertiveness or confidence in their own decisions.” They recommend that future studies consider such extremes.
By Dinah Wisenberg Brin