Research - 27.06.2024 - 09:00 

The Power of Attraction: How Beauty Influences Startup Investments

The world of startup investements is still male-dominated. As previous research has shown, this leads to disadvantages for female startup entrepreneurs in raising capital. A new study by the University of St.Gallen (HSG) in collaboration with scientists from the University of Zurich and the University of Notre Dame reveals that the attractiveness of female founders also plays an important role.

Female entrepreneurs face greater challenges in raising venture capital compared to their male counterparts. Various studies have shown that they encounter conscious or unconscious biases from predominantly male investors. Additionally, less than 20 percent of early-stage investors are women. One of the consequences of this imbalance is that male-led start-ups receive almost 50 times more venture capital than female-led start-ups. A study by the Global Center for Entrepreneurship and Innovation (GCEI-HSG)at the University of St.Gallen now shows that the attractiveness of the female founder also has significant influence on male investment decisions.

The halo effect doesn't always apply

"The halo effect is well-known in psychology. It suggests that we unconsciously attribute additional positive qualities, such as professional competence, to attractive individuals," explains Prof. Dr. Dietmar Grichnik, one of the co-authors of the study. However, depending on the context, this halo effect can be reversed. "Especially in a management context, attractive women are more likely to be perceived as lacking competence, which is also known as 'Beauty is Beastly’. We were interested in how this applies in the startup scene," says Dr. Robert Schreiber, a postdoctoral researcher at GCEI-HSG.

Hormone samples from over a hundred business angels

To investigate this, the researchers conducted an experiment involving 111 male early-stage investors from Switzerland and Germany. The participants were randomly shown a video pitch of the same startup idea, but with some presented by a more attractive actress and others by a less attractive one. It was a genuine startup case. Afterward, the investors had to indicate their likelihood of investing. They also had to assess the competence of the female founder, and only at the end were they asked to rate the attractiveness of the female entrepreneur in the video. Previous research has shown that the release of the stress hormone cortisol and the sexual hormone testosterone leads to increased risk behavior, which can manifest as a greater willingness to invest. Therefore, the cortisol and testosterone levels of the participants were measured before and after the pitch in the experiment.

Perceived competence and biological mechanisms are crucial

The results of the study are clear: the more attractive fictional female entrepreneurs had a 21-percentage-point higher likelihood of receiving investments. But what is the basis for this effect? Were investors simply dazzled by the greater attractiveness of female founders? The study points in a different direction. It clearly shows that the more attractive founders were also perceived as more competent. "We were able to demonstrate that the halo effect is also effective for attractive women in the startup sector. Contrary to our expectations, physical attractiveness had a positive effect," says Robert Schreiber. However, it was not only this perceived higher competence that correlated with more investments. The investors' cortisol levels during the pitch were significantly higher for more attractive female founders, which also correlated with the probability of a positive screening decision.

Creating diverse decision-making boards

The findings of this study suggest that beauty and unconscious biases play a significant role in startup investments. "Only through a solid understanding of these processes can we ensure fair and equal corporate financing, regardless of external characteristics such as attractiveness," says Prof. Dr. Dietmar Grichnik. "It is now up to the venture capital scene to become aware of this challenge and take appropriate measures to create a fairer and more balanced investment environment."

Read the full paper here:

Image: Adobe Stock / Anton Gvozdikov

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