Entrepreneurial Passion vs. Product Passion: What Do Investors Value More?
An entrepreneur’s attitude is an important factor in determining whether an angel investor or a venture capitalist decides to fund a company. A new study in the Journal of Business Journaling set out to study the role that an entrepreneur’s passion in general, and an entrepreneur’s passion for their product, play in this process.
In the study, entrepreneurial passion was defined as “rooted in entrepreneurial activities, including identifying and exploring new venture opportunities, founding and developing new ventures,” while product passion was defined as “passion for the product or service the venture provides or the domain-related problem it solves.”
For the study, the authors recruited 62 West Coast investors (31 angel investors and 31 venture capitalists). To mirror industry trends, the investors included in the study were largely male and around 52 years of age; they also had to have at least one venture behind them. Respondents had an average of 14 years of investment experience. The authors consulted with investors to produce 16 entrepreneur profiles that varied in five characteristics:
1) Startup/entrepreneurial passion;
2) Product passion;
3) Openness to feedback;
4) Entrepreneurial experience, and
5) Domain experience.
Investors were asked to rate entrepreneur profiles based on the likelihood that they would invest in them. As the authors note, “although venture investors tend to be consistent in their decision processes, they lack a strong understanding of how they make decisions,” and so a method of conjoint analysis was used to reveal the root causes of investment decisions. (Conjoint analysis is a market research method that breaks down products or services by distinct characteristics which are then rated on a scale to assess value.)
The study found that experienced investors, especially those who have founded several ventures, value a combination of entrepreneurial passion and product passion, but also an openness to feedback. Furthermore, while a combination of entrepreneurial and product passion does not guarantee an attractive profile, experienced investors were not impressed with product passion if it was not also accompanied by openness to feedback.
Contributed by Sughey Ramírez.
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