Investors increase financial support to entrepreneurs who share a personal shortcoming
Published in: Academy of Management Best Paper Proceedings – 6 July 2022
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Summary
What we found: When does exposing flaws bring financial benefits? We posed this question in the context of entrepreneurs exposing flaws while soliciting funding from investors. Using experiments as well as archival data from the U.S. television show Shark Tank, we find that only entrepreneurs who exposed bridging flaws (i.e., flaws that emphasize a lack of a socially desirable quality, such as insecurity) solicited more investment, and only from investors who shared this same flaw. Exposing distancing flaws (i.e., flaws that emphasize an excess of a socially desirable quality, such as arrogance) did not solicit more investment, even from investors who shared this same flaw.
Why it matters: Leaders are increasingly encouraged to be authentic, vulnerable, and to openly share their imperfections. We provide two important caveats to these calls, highlighting first that sharing distancing flaws (i.e., flaws that emphasize an excess of a socially desirable quality) does not cause investors to react more positively to entrepreneurs who are open about these flaws, and highlighting second that it matters whether or not investors share these same flaws with an entrepreneur.
What next: When sharing flaws, business leaders should consider both the type of flaw that they expose as well as their audience. Only when flaws are bridging flaws that indicate that an entrepreneur lacks a socially desirable quality, and the flaw is shared with the investor to whom they are pitching, does revealing a flaw draw two people closer together and bring benefits.