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Entrepreneurial Passion Falls Flat with Investors, New Research Suggests

February 1, 2009

For more information, contact: Benjamin Haimowitz,

When Howard Schultz was seeking backing for a little company called Starbucks, a managing partner of one prominent venture-capital firm liked his passion but didn't understand how one would make money selling coffee. So he didn't invest. 
Is his kind of response the exception or the rule?
The question arises from a surprising research report in the current issue of the Academy of Management Journal which suggests that entrepreneurial passion falls flat with potential investors. The research finds that "facial expressions, body movement, tone of voice, and other nonverbal cues" make little, if any, difference, even as they convey the presenter's passion for the enterprise in question.
"In the context of business-plan presentation, there were two distinct but related components...passion and preparedness," explain the report's co-authors, Xiao-Ping Chen and Suresh Kotha of the University of Washington and Xin Yao of Wichita State University. "We found preparedness to be positively related to [investors'] funding decisions, whereas the effects of the perceived passion were statistically insignificant."
The management professors acknowledge that their findings came as a surprise.  "Actually, there were two surprises," comments Prof. Chen. "One was that presentation style seemed to matter so little in gaining support -- a finding that may apply not just to venture-capital decisions but to other business contexts, such as job interviews or report presentations in corporate settings.
"And perhaps even more surprising was that the perception of entrepreneurs' passion seemed to count for so little. After all, passion is widely viewed as critical to the success of new enterprises. It is viewed as an indicator of how motivated entrepreneurs are, how determined they are to succeed, and how able they are to convey a vision to employees and motivate them to realize it. Yet, a presentation style that was perceived as conveying passion was virtually a negligible factor in investors' funding decisions."
The professors' investigation began with a survey to identify "nonverbal cues and behavioral indicators that would make [individuals] think that a presenter was passionate about his or her work." Among  the cues or indicators identified were "energetic body movements," "animated facial expression," "varied voice tone and pitch," and "face lit up when presenter talked."
They then carried out two separate studies that built on these findings.
In the first study, 126 MBA and Executive MBA students (average age, 37; average working experience, 14 years) were asked to read the executive summary of a business plan and then were shown an eight-minute video of an entrepreneur pitching it. Unbeknownst to any of the students, half were asked to judge a plan that had won first prize at the University's previous business-plan competition, while the remainder rendered judgment on the plan that had been ranked eighth. Some of each group saw a presentation which incorporated voice tones, gestures, and expressions indicative of passion, while others saw a textually identical presentation that was delivered in a flat, monotonous manner.
In sum, there were four different presentations, all delivered by the same professional actor. Study participants were asked to fill out a questionnaire in which, among other things, they rated the entrepreneur's passion and preparedness on a scale from 1 to 5 and made an investment decision (yes or no).
For the high-quality business plan 31 participants voted to make an investment and 28 voted no, while for the medium-quality plan, 11 voted yes and 53 voted no. In other words, there was a striking difference in funding decisions based on quality.
In sharp contrast, presentation style made little difference in investor decisions. Thus, for the high-quality plan, 20 voted yes and 17 voted no if the plan was presented in a manner suggestive of passion, while 11 voted yes and 11 no if the presentation style was flat. For the medium-quality plan, the choice was overwhelmingly not to invest whatever the manner of presentation -- 9 yes and 34 no when presented with passion, 2 yes and 19 no when presented without.
For the second study, the professors collected data over two years from the semifinal stage of an annual university business-plan competition. Study participants consisted of 55 judges, who came from venture-capital firms, banks, and financial companies in the local metropolitan area. The judges were assigned to eight panels that divided up the 31 entries, which, as semifinalists, were considered to have good potential to obtain funding.
Judges received written business plans a week before the presentations, and each team was allotted 15 minutes to present its plan followed by 10-minute question-and-answer sessions. Judges were asked to evaluate presentations in terms of the passion shown by the main presenter and the preparedness demonstrated in the presentation, and to indicate whether or not they intended to invest.
Among this group of professional investors, as among the MBA students, decisions were strongly related to the investors' perception of preparedness but unrelated to their perception of passion.
What accounts for these findings?
One possible factor, the authors think, may have been the high level of sophistication of the study participants. About three fourths of the subjects in both studies, for example, had taken public-speaking training, and may have been uncommonly "aware of the danger of using emotional expressions (displayed as passion) as opposed to emphasizing the substance of the business plans being presented to them."
Another factor may have been that the study counterposed passion and preparedness, even though preparedness, to some extent, reflects passion. As the authors put it, "Passionate individuals not only experience intense emotions, their minds are also more active (e.g., 'I can't stop thinking about the business venture idea'), and they are likely to take actions to address their passion." In other words, rather than being totally distinct from passion, preparedness is the "cognitive aspect" of it.
"In that sense, our findings are not totally at variance with the large body of research and opinion that link successful entrepreneurship with passion," comments Prof. Chen. "After all, as we make clear in the study, there is a lot more to passion than what we call its 'affective aspect' -- glowing facial expression, vigorous gestures, etc.
"At the same time, we can't rule out that, as our research suggests, sophisticated investors may not be as impressed with passion as widely thought. Perceived passion seems a lot more appealing than cold calculation as a reason for backing an enterprise, so that its role may have come to be exaggerated. To my knowledge, nobody has tested this before with the precision we apply in this study, and the reality may be somewhat different from what has commonly been believed."
She concludes: "When Howard Schultz was seeking backing for a little company called Starbucks, a managing partner of one prominent venture-capital firm liked his passion but didn't understand how one would make money selling coffee, and so he didn't invest. In the real world of business, that kind of response may be more the rule than the exception, with investors showing laudable resistance to high-powered salesmanship but failing to appreciate the value of passion."
The new study, entitled "Passion and Preparedness in Entrepreneurs' Business Plan Presentations: A Persuasion Analysis of Venture Capitalists' Funding Decisions," is in the February/March issue of the Academy of Management Journal.  This peer-reviewed publication is published every other month by the academy, which, with about 18,000 members in 103 countries, is the largest organization in the world devoted to management research and teaching. The academy's other publications are the Academy of Management Review, Academy of Management Perspectives and Academy of Management Learning and Education
Media Coverage:
The New York Times. In pitching to angel investors, preparation tops zeal. (Thursday, June 11, 2009). Good News for Timothy Geithner: Passionate Delivery Not Required. (Wednesday, February 11, 2009).

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