The role of personality traits in entrepreneurial finance

Economics literature maintains that individuals’ personality shape economic behavior by acting on preferences, such as risk attitude and trust, and by exaggerating biases in individuals’ judgement (Rabin 1998, 2013). Challenging the standard assumptions about the economic agents – that they are selfish, rational, and possess stable preferences – was the starting point (Kahneman 2003) that spurred a plethora of studies investigating psychological “portrait” of economic agents, and origins of their tastes and personality traits in economics (Durand, Newby, and Sanghani 2008; Durand et al. 2013; Zumbuehl, Dohmen, and Pfann 2021), and, more recently, finance settings (Corgnet, Desantis, and Porter 2018; Holmén et al. 2023; Kaplan and Sorensen 2021; Kaplan, Sørensen, and Zakolyukina 2022). It is therefore not surprising that the ideas emanating from these fields spilled over to the entrepreneurial finance field.

That individual characteristics matter in the context of entrepreneurial finance is a widely accepted notion both by industry and academia (Gompers et al. 2020; Heuven and Groen 2012; Levie and Gimmon 2008). Yet, up to now, most of the published work in entrepreneurial finance research has considered observable elements that determine individuals’ human and social capital such as gender (Brush et al. 2018; Ewens and Townsend 2020; Greene et al. 2001; Leitch, Welter, and Henry 2018), culture (Li, Vertinsky, and Li 2014; Perry, Chand, and Ring 2015), ethnicity (Bengtsson and Hsu 2015; Younkin and Kuppuswamy 2018), educational and professional background (Croce et al. 2020; Gompers, Mukharlyamov, and Xuan 2016; Tata and Niedworok 2020), or even religion (Chircop, Johan, and Tarsalewska 2020). While these factors remain important, the social and cognitive sciences (behavioral and experimental economics included) provide for a much richer characterization of individuals based on their personality traits, the combination of which determines a person’s distinctive character.

In parallel, entrepreneurship literature has long recognized the importance of personality traits for the chances of individuals to become entrepreneurs. Besides considering classical traits such as overconfidence and risk tolerance (Åstebro et al. 2014), in the last decade, scholars focused on more complete personality models, such as the Big-5 factor personality model and its add-ons (for a review see Kerr, Kerr, and Xu 2017). Personality aspects also have a fundamental importance when it comes to individual investment behavior. In this context, scholars often used the Myers-Briggs Type Indicators (MBTI) to assess which personality types are associated with risk aversion (Filbeck, Hatfield, and Horvath 2005) and cognitive biases (Pompian and Longo 2004) in taking financial decisions.

Only very recently, the entrepreneurial finance literature picked up on these aspects to understand the behavior of individual entrepreneurs and early-stage investors. Personality traits have a strong impact on language and communication with third parties, and are therefore fundamental in the interaction between entrepreneurs and their investors. Entrepreneurs’ personality traits thus influence their ability to raise external financial resources (Clark 2008; Gruda et al. 2021), especially in the context of crowdfunding (Anglin et al. 2018; Bollaert, Leboeuf, and Schwienbacher 2020; Butticè and Rovelli 2020). The personality traits of the investors are also likely to determine their investment decisions (Franić and Drnovšek 2019), as they need to match the personalities and “way of thinking” of the entrepreneurs in the target companies (Mitteness, Sudek, and Cardon 2012; Murnieks et al. 2011). Lastly, personality also matters in the interactions among investors in the entrepreneurial finance landscape, e.g., to select syndicated partners (Block et al. 2019).

This special issue contributes to the discussion on the role of personality traits in the context of entrepreneurial finance. The five papers here collected focus on how personality traits influence the demand and supply of external entrepreneurial finance, and their meeting point (investment realization).

On the demand side, Di Pietro and Tenca (2023), Isaak et al. (2024), and Andreoli and ten Rouwelaar (2024) investigate the role of the entrepreneurs’ psychological characteristics, and how they influence their chances of collecting financial resources. In particular, Andreoli and ten Rouwelaar (2024) conduct a survey asking how the entrepreneurs’ “hard” (i.e., observable, such as age or gender) and “soft” (i.e., personal and unobservable, such as extraversion or emotional stability) traits are preferred by and influence the investment decisions of venture capital (VC) investors. Using the sample of the Dutch entrepreneurs they elicit that both hard (entrepreneurs’ experience) and soft (agreeableness) traits are at play, when it comes to the likelihood of receiving funding from a financially oriented VC investor. Conversely, VC investors that focus on impact seem to prefer more educated and conscientious entrepreneurs.

In a similar vein, Isaak et al. (2024) randomly sample one hundred video pitches by U.S.-based entrepreneurs to investors, and have third-party evaluators assess the pitching entrepreneurs’ personality traits along the Big Five model. Their results indicate that entrepreneurs that were perceived (by the evaluators) as more open, more conscientious, and more agreeable were also more likely to spur the funding intention. In contrast entrepreneurs that are perceived as more emotionally unstable were less likely to elicit the investor attention. Interestingly, similar relationships are found between (perceived) individual-level traits and the entrepreneurs’ actual crowdfunding success, thus suggesting that third party perception of personality traits resonate in the perception of real investors in equity crowdfunding platforms.

Taking a different approach, Di Pietro and Tenca (2023) perform a textual analysis of equity crowdfunding campaigns on Crowdcube and Seedrs and uncover how entrepreneurs’ display of passion affects the success of these fundraising endeavors. The authors suggest that entrepreneurs signal their quality and commitment through passionate language in writing (e.g., through the usage of words like “amazing” or “committed”). The findings suggest that greater entrepreneurial passion increases the chances of campaign success, and that this effect is further reinforced by the entrepreneurs’ prior start-up experience (that is passion is a signal is more credible when the entrepreneur has experience in building startups).

On the supply side of entrepreneurial finance, Sun and Zheng (2024) conduct a field experiment over the investors and entrepreneurs in China to distill the features and effectiveness of the intuitive vs. cognitive mental processes of VC investors facing investment decision making problem. In the experiment, investors were randomly separated into two groups – intuitive and analysis ones – and were assigned the role of judges in the entrepreneurial pitch competition. Intuitive group had to evaluate projects after every pitch, and in a relatively short period of time, hence intuitive and impression-based evaluation. In contrast, analysis group was provided by a thoroughly designed evaluation grid referring to the industry, market, product, risk, and team characteristics of the entrepreneurial projects. The authors show that when investors use intuition to make investment decisions they rely much more on the quality of the entrepreneurial team, compared to investors from the analysis group. Quite surprisingly, the authors also find that intuitive cognitive process is more efficient than the analytical one, in that projects selected by investors from intuitive group had better performance nine months after the competition.

Lastly, Maureau and Tarillon (2024) focus on the shared mental model (SMM) between French investors and entrepreneurs. The authors tried to tackle the question of “how can we access the entrepreneur’s and investor’s representations and measure their levels of alignment in the context of their intuitu-personae relationship?”.¹ To do so, they applied the theory of shared mental models in the context of investor-entrepreneur relationships by conducting 16 interviews with four entrepreneur – investor dyads. Among others, their results show that a new dimension emerges in addition to the five traditional sub-dimensions of the SMM theory: past experience of the investor’s and entrepreneur’s in the domain. The authors also demonstrate the need for a multi-level and multi-approach for analyzing the alignment of entrepreneurs’ and VCs’ representations and for a better understanding of their relationship.

In concluding this editorial introduction, we emphasize that this special issue is by no means intended to provide final answers regarding the role of personality in entrepreneurial finance. Instead, we seek to spur the debate and spark further research in the field. Papers that make part of this special issue provide evidence based on data from the U.S., China, the Netherlands, the UK, and France. Yet, this is but a small subset of various economic, social, and cultural contexts in which investors and entrepreneurs interact; for this reason, we encourage more international research, before coming to any general or prescriptive conclusions. This special issue offers a plethora of other possibilities for future research, which we encourage.

For instance, recent advances suggest that intergenerational transmission mechanism may be at play in the general population (Zumbuehl, Dohmen, and Pfann 2021), but whether this holds true for entrepreneurs and investors is nevertheless worth considering. The cognitive modes of entrepreneurs (as opposed to those of investors studied by Sun and Zheng 2024) also deserves more academic attention. Di Pietro and Tenca (2023) push us to wonder whether displayed personality can be purposefully manipulated to improve fundraising outcomes: if entrepreneurs can improve their chances of fundraising by displaying passion, what would stop them from “faking” it in their online narratives? And if they do, then how could the crowd disentangle true passion from the fake one? This resonates with Isaak et al. (2024) focus on the delicate issue of perception, and whether different backgrounds and experience influence individuals’ perception of entrepreneurs’ personality traits. This is fundamental in an entrepreneurial finance context characterized by increasing heterogeneity of investors and investees (Block et al. 2017). How do investors characteristics influence perception and importance given to any entrepreneurial personality trait? Andreoli and ten Rouwelaar (2024) focus on VC funds purpose, disentangling financial and impact-oriented funds. Yet the individuals working in such funds are likely to have distinct background and individual characteristics which surely play a role in their investment preferences (Scarlata, Walske, and Zacharakis 2017). Pushing the reasoning further, future research is surely needed on the role of personality traits of investors, and how they interact with those of the entrepreneurs’ seeking funds. Acknowledging Andreoli and ten Rouwelaar (2024)’s first attempt in this direction, the most obvious question is still: do opposite or similar personality traits attract each other, and result is the best matches between investor and investee? As suggested by Maureau and Tarillon (2024), the question of the best alignment of entrepreneurs and investors traits is likely best answered using a mixed method approach. We hope that these and all other avenues for further research discussed in each paper of this special issue will eventually lead to a better and richer understanding of the role of personality in the context of entrepreneurial finance.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Interestingly, this question also echoes with the findings of Andreoli and ten Rouwelaar (this SI) who indicate a substantial degree of correlation (60%) between the entrepreneurs’ and investors’ self-assessed soft personality traits.