The Emotional Side of Investment: What Founders Need to Know

Welcome to the Proven Health-tech CEO newsletter!

Designed to help entrepreneurs scale their business, raise funds, and/or exit.?

I'll be posting my insights from my many years as an entrepreneur, chief exec and investor. I have a track record of guiding companies to secure significant funding and scaling businesses globally. I'll be writing as well as posting videos and interviews with some very interesting people, so watch this space.

In today’s post, I want to dive into the surprising and often overlooked impact of emotions when making decisions. VC's and PE firms can be extremely emotional when making investment decisions, so its worth understanding how you can make an emotional case to sit alongside your analytical one.

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The Emotional Side of Investment: What Founders Need to Know

Venture capital/private equity decisions may seem analytical on the surface, but dig deeper, and you’ll find something surprising: emotions play a significant role in how deals are made.

For founders seeking the best valuations for their startups, understanding the emotional drivers behind Investor decisions can be just as important as perfecting your pitch deck. Here’s the inside scoop.

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Investors Bet on People, Not Just Products

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“We invest in the jockey, not the horse.”

This couldn’t be truer. Research shows that trust, passion, and a founder’s emotional connection with Investor’s often tip the scales in favour of investment.

A 2018 study published in the Journal of Business Venturing ?found that an Investor’s trust in a founder significantly impacts funding decisions. Trust isn’t built through flashy slides or big numbers—it’s built through authenticity, confidence, and a shared sense of purpose. Founders who demonstrate these qualities stand out in an industry flooded with pitches.

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The Power of Storytelling

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Numbers are essential, but they rarely make an emotional impact.

Research from the University of Bath underscores?the significant role of storytelling in venture capital (Investor) investment decisions. It highlights that the narratives founders craft about their ventures can profoundly influence Investors’ perceptions and decisions.

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Founders who can weave their journey, vision, and mission into a narrative that resonates with Investors are far more likely to secure funding.

?Storytelling taps into empathy and trust—two emotional factors that drive decisions.

As a founder, your pitch shouldn’t just be about the what of your business; it should focus on the why.

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• Why does your company exist?
• Why does this problem matter?
• Why are you the right person to solve it?

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Invest in story telling as a skill. It will pay for itself in droves.

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Passion Wins Hearts—and Deals

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Research from Stanford and Harvard indicates that Investor s frequently cite founder passion as a key determinant.

Passion is seen as a proxy for resilience and commitment—qualities that are emotionally charged but critical for navigating the challenges of scaling a startup.

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A study published in Entrepreneurship Theory and Practice showed that emotional expressions such as enthusiasm and positivity in pitches increase the likelihood of securing funding, as they inspire confidence and excitement in Investors.

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FOMO is Real

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If you’ve ever wondered why some startups seem to attract funding so easily, the answer often lies in an emotional driver Investor’s won’t admit to outright: fear of missing out (FOMO).

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When one reputable Investor shows interest, others often follow suit. In fact, a CB Insights survey revealed that nearly 30% of Investorss acknowledged FOMO as a factor in their decision-making, especially in competitive funding rounds.

The lesson for founders? Creating buzz and leveraging social proof can work wonders in your favor.?

Gut Feelings and Intuition

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Many seasoned investors rely on their “gut,” a decision-making process that’s surprisingly emotional. Whether it’s the chemistry they feel during a meeting, alignment with their values, or the founder’s charisma, intangible factors often play a pivotal role.

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This is why building relationships with Investors early—and consistently demonstrating your values and capabilities—is so important. First impressions matter, but sustained trust is what closes deals.

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Warmth + Competence = A Winning Formula

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Psychologists often talk about the “warmth-competence” factor: the idea that people evaluate others based on two primary dimensions. For Investors, this means they look for founders who are both emotionally relatable (warm) and highly capable (competent).

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Too much warmth without competence can make you seem like a dreamer, while competence without warmth can make you seem untrustworthy. Striking the right balance is key.

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Negative Emotions Can Break Deals

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Emotions aren’t just about the positive. Negative impressions—arrogance, overconfidence, or inconsistency—can quickly derail even the most promising opportunities.

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Research published in Venture Capital: An International Journal of Entrepreneurial Finance highlights how negative interpersonal interactions during pitches or due diligence can undermine an otherwise promising opportunity.

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Investors often walk away from deals where founders fail to demonstrate humility or fail to align with their values.

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Takeaways for Founders

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Securing funding isn’t just about the numbers; it’s about how you make Investors feel. Here’s how to appeal to the emotional side of Investors:

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??????????? 1.???????? Show your passion: Let your commitment to solving a real problem shine through.

??????????? 2.???????? Build trust over time: Start conversations with Investors long before you’re raising money, and keep them informed of your progress.

??????????? 3.???????? Tell your story: A great pitch isn’t just data—it’s a narrative that Investors can believe in.

??????????? 4.???????? Be relatable and likable: Confidence and humility go hand in hand.

??????????? 5.???????? Create momentum: Leverage social proof to make your startup irresistible to Investors.

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Remember: Investors don’t just invest in businesses—they invest in people. Make sure you’re the kind of founder they can envision building a future with.

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Final Thought

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If you’re a founder navigating the complex world of venture capital, keep this in mind: emotions aren’t just a part of the decision-making process—they’re often the deciding factor. By understanding what Investors value on a human level, you can position yourself as not just a great investment but the right investment.

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