Should You Dare to Be Different? The Effect of Perceived Personal Distance in Early-Stage Investment Decision Making.

Abstract

Research focused on the effect of intercultural differences between investors and entrepreneurs in startup investment decision making has so far only considered cultural differences to be caused by differences in race, ethnicity or country of origin. This study argues that such a definition of culture is incomplete, and expands this concept by including the dimension of personal distance – described as differences related to thinking, value and communication – into the investment decision framework. Next to investigating the way in which the level of personal distance an investor perceives towards an entrepreneur affects their decision to invest, this study researches whether awareness of personal distance further influences this relationship. By means of an online experiment, a sample of Dutch business students were asked to evaluate the level of perceived personal distance towards a fictional entrepreneur and evaluate their decision to invest in his start-up. In this two-by-two between subjects design, participants where actively assigned to one of four conditions based on different levels of personal distance and awareness. Ultimately, this study accepts the hypothesis that perceived personal distance negatively affects the amount investors are willing to invest in a start-up, and that making investors explicitly aware of a low level of personal distance positively impacts this relationship. Further, this study shows indication of a similar, negative effect of perceived personal distance on the an investor’s likelihood of investment, but is not yet able to provide significant proof of such a relationship in light of a low sample size. The acceptance of two hypotheses results into strategical implications for entrepreneurs looking for start-up investment: they are encouraged to look for personally similar investors and highlight interpersonal similarities to increase their chances of receiving investment. On a theoretical note, this study calls for the including of personal distance as a dimension of cultural distance in the investment decision making framework, as well as revisiting the rejected hypothesis in a direct follow up study with an increased sample size.