The role of entrepreneurs’ attributes in early-stage investment decisions

Abstract

Access to capital is a critical step for early-stage entrepreneurial ventures such as start-ups but also constitutes a major hurdle since there is little available data to back up their product. The current paper proposes a theoretical early-stage investment decision-making framework that draws on dual process theory and signaling theory to suggest that investors’ intuition is composed of cues and signals that impact their overall perception of the entrepreneur and the venture evaluation. Four categories are shown to define the ways in which entrepreneur attributes contribute to angels’ and venture capitalists’ gut-feeling evaluations of funding potential: (1) attributes that investors look for in an entrepreneur as assessed during their early encounters, (2) pitch-related attributes that are indicative of entrepreneur motivation, (3) attributes related to venture performance that may point to the venture's growth potential and (4) entrepreneur self-efficacy. By proposing a theory of early investment decision-making based on System 1 and not only System 2 as is typically hypothesized, this framework contributes to the literature on entrepreneurial finance theory, individual decision-making, and theories of affective judgment under conditions of extreme risk and uncertainty.