Pulling at investors' heartstrings is the key for entrepreneurs seeking to crowdfund a startup.
A University of Oklahoma study discovered that certain types of language used by entrepreneurs affect success in generating investment. Specifically, entrepreneurs are more successful in raising microloan funding when they spend little time discussing their achievements and accomplishments.
The research indicates that this is the case because lenders are more likely to fund a project in an effort to feel better about themselves, known as the "warm glow phenomenon," said Oklahoma doctoral candidate and the study's lead author, Thomas Allison. The research used a technique called computer-aided text analysis to examine 6,000 entrepreneurs.
"Our research suggests that how entrepreneurs discuss themselves when requesting funding shapes whether investors feel good about helping them," Allison said. "This is important because it suggests emotions are important to the process of raising funds for a new venture."
The research found that when entrepreneurs use a large amount of accomplishment rhetoric, they appear less needy, reducing the level of internal reward a lender would feel.
While the study shows that using emotions to attract startup funding is most successful for entrepreneurs from developing countries, it can still be an effective strategy for U.S. business owners. Researchers point to angel investors, who are thought to be driven not only by the possibility of earning a return on their investment, but also by the satisfaction of helping worthy entrepreneurs
The study, co-authored by Jeremy Short and Aaron McKenny, is scheduled to appear in an upcoming issue of the Journal of Business Venturing.
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