Throughout the month of September we will hear about the work being done by members of the Centre for Governance, Regulation and Industrial Strategy. Here Winifred Huang talks about her recent study on the effect of confidence on investment decisions. She looked at the virtual materials provided as part of online investment bids, to try and find out how much the pictures of the bid team matter to investors. Her results show that they do in fact affect the success of bids, with ‘confident’ looking entrepreneurs more likely to win funds.
After almost a year and a half of intermittent lockdowns, economies across the world have suffered. There is a great deal of uncertainty, which can make investors reluctant to part with capital. On top of that, the evolution of financial technology means that the investment landscape has shifted - blockchain-based ventures are springing up all over online fundraising platforms – and so the traditional processes and expectations around applying for funds are changing. Entrepreneurs will have a key role in reinvigorating the economy, but how can they ensure that their funding bids are successful among all other competitors online?
A picture is worth a thousand words
My recent research helps answer that question. My colleagues and I set out to discover whether the perceived confidence of the fundraiser helps them get investment.
We looked specifically at ‘Initial Coin Offering’ (ICO) where a firm seeks money from investors online and bypasses banks and venture capital firms. The business information provided in this type of online fundraising is often less comprehensive than that given in more traditional fundraising models. However, images of the team are provided. So, in the absence of other data, the visual information gleaned from these pictures – such as expressions, poses and clothing – becomes key when making investment decisions.
We asked study participants to judge the confidence of individuals who had attempted to raise funds through ICO, based on their photographs. Participants were selected at random and were given no other information about the success of the individuals’ bids. We found that the people perceived as most confident in their pictures were also the ones who’d managed to raise the most funds.
Perception or reality?
These findings might cause frustration in some quarters, as they suggest that the quality of your product, the thoroughness of your plan and the talent and intelligence of your team are less important than the investor’s perception of how self-assured you seem.
However, superficial or not, confidence is seen as an indicator of successful performance –high levels of confidence make it more likely that someone will initiate and sustain action.
What’s more, confidence is hard to quantify and can mean different things to different people. So how can entrepreneurs ensure that they come across as confident?
We examined the elements that might make an ICO team look more sure of themselves in their online images and found that wearing a suit and smiling signals confidence to investors.
We also found that black and white pictures were perceived as more confident – we believe that this is due to its uniform visual style, which suggests that the team has thought in depth about their presentation.
A set of team photos taken in the same place were also found to be reassuring to prospective investors, as the indication that they share a physical space suggests that they will operate more efficiently than virtual teams.
One surprising finding was that the traditional, ‘corporate pose’, where a person stands with their arms crossed across their chest, did not seem to increase the perception of confidence.
Judging a book by its cover
In an increasingly digital society, more and more companies are seeking funds via online investment, and so visual presentation will continue to be important. Our research suggests that potential investors do judge a book by its cover, so spending time and money on making the pictures of the venture teams look coherent, professional and upbeat is important. We hope that these findings help bid teams by providing them with another tool to communicate with investors all over the world!
In our future research we aim to learn more about the online investment bid process, specifically looking for more evidence as to what elements of the bid materials are the most important. Given the limited amount of information that investors receive as part of these bids, each aspect of the material given takes on a significant role in communicating with the potential funders.