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Entrepreneurial investors reward preparation over passion

The stereotypical entrepreneur is all about passion—a hyper-extroverted pitchman skilled, above all, in the persuasive arts. But a new study by researchers at the University of Washington Foster School of Business demonstrates that preparedness trumps entrepreneurial passion when it comes to gaining backing from potential investors.

The study is the work of Xiao-Ping Chen, professor of management and organization and Evert McCabe Faculty Fellow at the Foster School; Suresh Kotha, professor of management and organization and Olesen/Battelle Excellence Chair in Entrepreneurship at the Foster School; and Xin Yao, a former doctoral student at the Foster School now on faculty at the University of Colorado at Boulder.

Passionate pitch doesn’t persuade
The researchers asked professional entrepreneurs, venture capitalists and angel investors to assess new venture pitches presented during two editions of the UW Business Plan Competition. The competition annually awards $75,000 in seed funding to the most promising of 80-plus student ventures from universities across the state of Washington.

In their analysis, the researchers found that non-verbal cues of the entrepreneur’s passion—such as animated facial expressions, energetic body movements and buoyant tone of voice—made little, if any, difference in persuading investors, even as they conveyed passion for the enterprise in question.

Preparedness suggests deeper form of passion
Chen says that true preparedness by an entrepreneur suggests a deeper, more cognitive form of passion that is not so easily perceived in a brief pitch. “Nevertheless, in our study presentation style and the perception of entrepreneurial passion mattered little in gaining support,” she says. “It’s a finding that may apply not just to venture capital decisions but to other selection contexts, such as job interviews or report presentations in corporate settings.”

The study, “Passion and preparedness in entrepreneurs’ business plan presentations: A persuasion analysis of venture capitalists’ funding decisions,” is published in the February 2009 Academy of Management Journal.