Building a company is so hard that “if you don’t have a passion, you’ll give up,” said Steve Jobs, CEO of Apple Inc., in a 2000 Fortune article. Investors know this, and so they screen for entrepreneurial passion when deciding which ventures to fund.
But not all kinds of passion attract cash, finds a new research article. Instead, cognitive passion—as revealed in entrepreneurs’ preparation, thoughtfulness, and logic— brings the bucks, while affective passion—as evident in facial expressions, gestures, and tone of voice—does little to court capital.
“There are different levels of passion,” explains Xiao-Ping Chen, a professor at the University of Washington’s Foster School of Business and the study’s lead author. “On the surface level—affective passion—you see whether people are excited, whether their faces light up. A deeper level is their cognitive processes—how much and how deeply they think about their idea. An even deeper level is behavior: Did the entrepreneurs, say, quit their jobs to start their own business? How much of their own money did they invest?”
To test whether and what kinds of passion win venture funding, Chen and her colleagues first created scales that observers could use to rate other people’s cognitive and affective passion. (The scale does not measure behavioral passion.) They then asked 55 investors hailing from venture capital firms, banks, and financial companies to use the passion scales in rating 31 presentations at a university business plan competition. The researchers found that the more prepared— that is, cognitively passionate— the entrepreneurs, the more likely they were to win funding from the judges. Affective passion, however, did not lure the lucre.
The founders of D.light Design, a company that creates safe, affordable lighting for people in the developing world, can attest to the importance of preparation in securing commercial capital. Since its founding in 2006, D.light has so far clinched some $6 million in venture funding. “Really knowing the market is critical,” says Nedjip Tozun, the company’s president. “We spent a lot of time with customers, and so we understood their core needs. There were a lot of other initiatives with solar- powered LED products [like D.light’s], but they were frankly just too expensive. We knew our customers’ price point, and were able to articulate that to investors.”
D.light’s engineers also worked a year without pay to develop a prototype of the company’s first product. “Our passion was obvious by what we created without any funding. We could say [to potential investors], here’s the product, here’s the market, and here’s the plan for getting the product to market.”
Such extra preparation may be even more important for social entrepreneurs than for ordinary business entrepreneurs, says Chen. “Every social entrepreneur has a compelling story,” she notes, “and so to differentiate themselves, they have to show more careful analysis.”
“It’s a lot of hard work, and so it’s not for the faint of heart,” agrees Tozun. “But if you’re really passionate about something, it’s doable.”