Making hay while the sun shines? Startup founders more likely to get investment on sunny days

Early-stage founders have a better chance of getting investment if they pitch on a sunnier day, according to a new study of nearly 1,400 startups graduating from European accelerators.

The research conducted by Gary Dushnitsky, Associate Professor of Strategy and Entrepreneurship at London Business School (LBS) and Sayan Sarkar, PhD student at LBS, entitled ‘Here Comes the Sun: The Impact of Contextual Factors on Entrepreneurial Resource Acquisition’, draws on affect-as-information theory to consider the impact of incidental contextual factors – such as changes in the physical environment – on investor mood and resulting likelihood of investment.

Using proprietary data on startups graduating from European accelerators, the authors found that those who pitched when the Demo Day fell on a day that was sunnier than the previous one experienced an increase in the likelihood of actual investment in the pitching startup.

Dushnitsky explains: “We look at the change between the pitch day and the day prior to it. So, if we have two sunny days, we would not expect an effect. But if yesterday was cloudy and today is sunny – we predict a greater likelihood of investment.”

As for the reason why, the authors believe it is indeed down to the positive effect the weather has on investors’ mood.

“Building on psychological theories and behavioural economics, we expect that contextual factors (more sunshine) may affect your mood in a way that shapes your decision,” adds Dushnitsky.

Moreover, this positive sunnier effect was stronger for ventures in the earliest of stages and those where the founders had very limited human capital. This suggests that contextual factors could be all that is necessary to tip the balance in favour of investment, should there be not much else to go on.

Recently studies of investment pitches and their success or failure have either looked at the characteristics of the startup themselves or the traits of the investors, but this research suggests that another category of factors – namely, contextual ones – could be just as influential and deserve interrogation.

There are wider implications for investors from the study as well, particularly as AI tools and algorithms are becoming more and more popular to source investment deals and assist with investment decisions. The new research suggests that while the characteristics of the startups and the attributes of their potential investors are always going to play a role, these algorithms should also take account of data about contextual factors and perhaps investors should incorporate these factors into their analytics.

Gary Dushnitsky says: “Unlike later-stage startups – there are often fewer objective factors to evaluate when assessing early-stage investments. In that setting, contextual factors may sway investment decisions – and therefore accounting for contextual factors may yield a more nuanced understanding of investment drivers.”

“Ultimately, when it comes to the use of algorithms, it’s all about marginal differences. Take two similar startup-investor pairs. One startup gets funded and the other one doesn’t – the literature says it’s because one startup is better than the other, or one investor was more biased than the other. What we are saying is, that’s not necessarily true – it’s possible the two are exactly the same. Why did one get funded when the other didn’t? Because of the sun,” he explains.

“It illustrates that the algorithm would fall short of capturing and explaining what is actually happening, and therefore the investor would not be as effective in making their investment decision; whereas if you incorporate contextual cues (such as sunshine), you can explain the difference. We believe this will allow for an improvement in VC algorithms,” concludes Dushnitsky.

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