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Entrepreneurship Research Journal

Ed. by Alter, Theodore / Hughes, Mathew / Labaki, Rania / Lyons, Thomas / Mishra, Chandra / Mustafa, Michael / Zachary, Ramona K.

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Blowing Smoke? How Early-Stage Investors Interpret Hopeful Discourse within Entrepreneurially Oriented Business Plans

William Wales / Kevin C. CoxORCID iD: https://orcid.org/0000-0002-3275-6692 / Jason LortieORCID iD: https://orcid.org/0000-0003-2537-9048 / Curtis R. Sproul
Published Online: 2018-10-23 | DOI: https://doi.org/10.1515/erj-2018-0114


This study examines how written expressions of entrepreneurial orientation (EO) and hope may affect investor evaluations of funding potential in business plan competitions. To understand why some firms are evaluated more favorably, we combine screening and signaling theory when analyzing early-stage venture-investor communication. Findings support that expressions of EO while business planning contribute to greater expressions of hope to cope with the Knightian uncertainty when developing new business models. Results suggest that the impact of hopeful dialogue on investor impressions of fundability critically depends upon the presence or absence of past founder financial investment. Implications for future research are discussed.

Keywords: new venture funding; entrepreneurial orientation; hope; founder financial investment


Investor funding is often critical for sustaining and growing entrepreneurial enterprises. However, a relatively slim proportion of new ventures seeking traditional funding ever receive the investment they are hoping for (Sohl 2005). In fact, most never even get the opportunity to pitch directly to investors. They are instead eliminated from consideration during the preliminary screening phase when ventures are typically assessed in the form of a plan or proposal (Argerich, Hormiga, and Valls-Pasola 2013; Haines, Madill, and Riding 2003). Thus, while there is a considerable amount of funding available to young, seed stage firms (Paul and Whittam 2010), a glaring challenge for many start-ups is how to stand out among the competition seeking funding.

The purpose of this research is to provide insight into why early-stage firms often fail to progress past the initial screening stage of the investment process. The present study addresses the question of how new ventures should communicate with investors when business planning to increase their chances of a favorable review. To address this question, we focus on the implications of ventures’ expressions of entrepreneurial orientation (EO), as well as their hopeful discourse, and investigate how these factors may help explain investor’s decisions regarding their funding viability. Popular media outlets (e. g. Entrepreneur Magazine), news outlets (e. g. Wall Street Journal), prior research (e. g. Maxwell, Jeffrey, and Levesque 2011), and even angels themselves (e. g. Angel Capital Association) all suggest a preference for entrepreneurial startups characterized by innovation, risk taking, and potential for significant growth. Our goal is to investigate a potential bias towards ventures’ communication of greater EO within their business plan and receiving higher investor praise and attention during business plan screening.

Yet, early stage entrepreneurially oriented ventures confront Knightian uncertainty (Knight 1921) and have many hypotheses, or guesses, about potential aspects of their business model that they must test, learn about, and build upon over time (Blank 2013). As such, new ventures represent an organizational context likely to be filled with hope, defined as a positive motivational state that is based upon goal-directed energy and the belief that pathways will be discovered to reach success (Snyder, Anderson, and Irving 1991; Luthans, Avolio, and Norman 2007). This belief, however, may provide benefits and drawbacks to early-stage ventures. Hope can be a source of social action (Ludema, Wilmot, and Srivastva 1997), a challenge to the status quo (Bloch and Plaice 1986), and a way to influence the future. Entrepreneurially oriented ventures may express hope to address, and perhaps eschew many difficult to solve problems. For instance, start-ups often work to develop their product-market offering hoping that a market will exist for the product once developed (Blank 2013). Entrepreneurially oriented start-ups are pioneering ventures with ambitious visions that may be more prone to the expression of a hopeful tone within their business plan. We reason that entrepreneurially oriented ventures expect that pathways will become navigable to close the gap between their long-term vision, and their immediate development hurdles, that is, such that they will be able to cross the chasm of customer adoption and achieve accelerated growth.

This study contributes to the early-stage investment literature by exploring whether how new ventures craft their dialogue to investors matters (Brush, Edelman, and Manolova 2012). While hope can be a motivational force, it is often expressed without accompanying evidence of commitment or rationale for its exhibition (Bovens 1999; Waterworth 2004). This creates a conundrum for entrepreneurially oriented ventures that may use hopeful language to frame or address difficult problems, but in doing so may demonstrate a lack of believability that success can be achieved. Specifically, building upon screening theory (Sanders and Boivie 2004), this research argues that investors screen plans for the presence of entrepreneurially oriented dialogue, and generally prefer to not see an abundance of hopeful dialogue within the plan. Investors expect an entrepreneurially oriented vision, but when it comes to pathways to success, they prefer concrete evidence of traction over hopeful sentiment which might simply be “blowing smoke” about what is possible. Building upon signaling theory (Spence 1973), we suggest investors are naturally skeptical and demand a stronger accompanying signal in the form of founder financial investment to interpret hopeful expressions as believable. This linkage represents a contribution to the early-stage investment literature that helps answer why some ventures pass the screening stage of the investment process while others do not, based upon how their plans are crafted and communicated.

To investigate the earliest stage of new venture assessment, we utilize a suitable research setting and method of analysis that is congruent with the manner in which the majority of early-stage investments are evaluated (Kirsch, Gera, and Goldfarb 2009; Mason and Harrison 1996; Mason and Stark 2004; Sudek 2006). Specifically, we focus on the investment proposal captured via the venture’s business plan. We employ a linguistic-based, computer aided text analysis (CATA) of more than 200 business plans to systematically analyze the content within the plans to determine how these factors influence early-stage investors evaluation of funding potential.

Theoretical Background

Haines, Madill, and Riding (2003) suggest that there are five steps in the investment decision-making process: initial screening, evaluation, deal structuring, post-investment activities, and cashing out. We focus on the first two steps in the process as most salient when considering early-stage investor interactions via formal written communications. Screening and evaluation take place in tandem during the initial evaluation of business plans during a business plan competition, and this process often mirrors the process that many angels and angel groups employ. For example, following recent evolution in the angel environment, entrepreneurs can now simply submit their plan or proposal for consideration via an electronic platform (i. e. Gust or Angels List) which angels and similar groups then use to screen and evaluate business plans. In our research context, a business plan competition, judges are angel investors or members of the broader early-stage investment community and they are charged with reviewing each business plan to determine if a venture warrants further evaluation. Thus, their initial job is principally screening, with some overlap, or initial forays into the evaluation stage, which continues if the venture passes the screening phase and is invited to provide more information and give an in-person pitch.

Screening Theory

As discussed by Bergh et al. (2014, p. 1354), “Firms whose behavior is difficult for outsiders to discern and who send ambiguous signals present important problems for researchers to explore.” Along these lines, in the context of early-stage venture investments, screening arises due to the large number of ventures seeking funding and an abundance of weak signals. Screening theory captures how recipients prioritize among the types of noisy signals they receive based upon their preferences and what unobservable characteristics they believe that the signals imply and are associated with (Gomulya and Mishina 2017). Screening theory suggests that receivers, judges, buyers, investors, etc. filter alternative offerings or proposals based upon the signals they receive and what they interpret them to mean (Sanders and Boivie 2004). Signal receivers have certain norms and expectations that, when not met, may cause them to look unfavorably upon a potential offering or proposal (Weiss 1995).

This research proposes that screening theory can improve our understanding of how investors sort business plans based on observed linguistic choices and impressions, which influence investor perceptions of new ventures’ underlying potential value. Business plans are a primary tool for entrepreneurs seeking funding and represent formal communications and appeals to investors that their ideas are meritorious (Mason and Stark 2004). Past research in entrepreneurship has often focused on how potentially favorable venture signals are interpreted, such as management experience (Kirsch, Gera, and Goldfarb 2009). However, recently studies have considered broader heuristic cues that may affect investor screening decisions (Chen, Kotha, and Yao 2009). Scholars have investigated the color of images in business plans (Chan and Park 2015), overall plan preparedness (Brush, Edelman, and Manolova 2012; Parhankangas and Ehrlich 2014), verbal presentation enthusiasm (Cardon, Mitteness, and Sudek 2016), and suggested the need to consider other factors such as the linguistics employed. The investigation of such heuristics is particularly relevant when considering challenging or noisy contexts as typified by early-stage investment screening (Chan and Park 2015). In this vein, business planning and early-stage venture communication emphasizes and depends upon effective impression management beyond the “facts of the case” (Parhankangas and Ehrlich 2014).

Signaling Theory

In this research, we consider screening theory (Sanders and Boivie 2004) alongside signaling theory (Spence 1973) as two fundamental sides of communication within uncertain contexts. Signaling theory conceptually differs from screening theory in terms of which party is the dominant actor (Gomulya and Mishina 2017). Both theories assume information asymmetry between senders and receivers (Connelly et al. 2011); however, screening theory focuses on uninformed receivers’ active use of filtering routines to choose among potential senders (Weiss 1995), whereas signaling theory emphasizes informed senders’ efforts to achieve a separating equilibrium from their peers (Bergh et al. 2014).

Signaling theory posits that higher quality organizations attempt to identity and leverage signals that are difficult and costly for lesser quality organizations to claim or falsify, thereby providing the presumably higher-quality organizations with a distinguishable advantage that perceptibly distances themselves from their peers within a competitive marketspace (Connelly et al. 2011; Spence 1973). If such signals are unable to be identified, a situation of pooling equilibrium is manifest in which receivers are unable to sort firms based upon quality. A variety of signals have been considered and investigated within the entrepreneurship literature including founder involvement and experience (Busenitz, Fiet, and Moesel 2005), venture capital investment and involvement (Davila, Foster, and Gupta 2003), founder CEO status (Wang and Song 2016), and board characteristics (Certo 2003). Akin to the broader management and strategy literature (Bergh et al. 2014), the value and strength of potential signals have been shown to be context dependent within new ventures as well (Moss, Meyskens, and Neubaum 2015). That is, EO-focused microenterprise funding narratives on a well-vetted crowdfunding platform might present a costly signal (Moss, Meyskens, and Neubaum 2015), whereas comparable narratives within an open business plan competition may not carry similar penalties for exaggeration or misrepresentation. As such, signaling theory remains an important research area in entrepreneurship (Connelly et al. 2011).

Hypothesis Development

EO and Venture Fundability

EO represents an entrepreneurial strategy-making approach characterized by the simultaneous exhibition of innovation, risk taking, and proactiveness (Deb and Wiklund 2017; Eggers et al. 2017; Miller 2011; Pérez-Luño, Saparito, and Gopalakrishnan 2016; Rauch et al. 2009). In this vein, EO can be communicated to investors through written documents and communications such as an IPO prospectus, shareholder letter, or venture business plan (Mousa, Harper, and Wales 2015; Short et al. 2010). Past empirical evidence suggests that EO may have a positive relationship with the funding potential of new ventures (Cox, Lortie, and Gramm 2016; Cox and Sproul 2015). However, as evident in research conducted by Cox and Lortie (2015), this relationship can be relatively weak, and may be due to differences in terms of how much progress ventures have obtained towards their stated goals.

Yet, most all new ventures are confident of high-growth. In the context of new venture business plans, EO perhaps does not constitute a strong signal because there are few costs associated with its imitation. Investors expect entrepreneurially oriented language (Moss, Meyskens, and Neubaum 2015), it would be missed if it was absent, and anyone can use EO language in an attempt to convince judges about their plans fundability. While entrepreneurially oriented language is expected, many entrepreneurially oriented plans do not achieve their goals, thereby reinforcing the insufficiency of entrepreneurially oriented messages to represent a stable separating equilibrium among venture plans. A situation of pooling equilibrium is manifest in which all ventures offer similar signals and judges are left unsure which to believe (Bergh et al. 2014).

Nonetheless, while EO does not meet the criteria of a strong signal, when interpreted from the perspective of screening theory, investors may be more likely to screen out plans that are low in EO. A considerable amount of previous empirical research has consistently found the core dimension of EO to be an important characteristic of attractive startups (Maxwell, Jeffrey, and Levesque 2011). Innovation (e. g. Mason and Stark 2004; Mason and Harrison 2002; Stedler and Peters 2003), proactiveness and passion (Haines, Madill, and Riding 2003; Mitteness, Sudek, and Cardon 2012) and pursuing high-upside opportunities (Mason and Stark 2004; Sudek 2006) have all been shown to be positive facets of attractive ventures. That is, when evaluating business plans, entrepreneurially oriented ideas and impressions are praised by early-stage investors that generally seek to reward ventures which have brought new perspectives to bear on how to address potential product-market opportunities (e. g. Moss, Meyskens, and Neubaum 2015; Stedler and Peters 2003).

A screening perspective suggests that since early-stage ventures are high risk, investor judges would look for the possibility of entrepreneurially enabled high growth potential to evaluate them favorably (Freear, Sohl, and Wetzel Jr 1995; Wong, Bhatia, and Freeman 2009). Investors may screen plans for EO as a favorable observable characteristic within business plans given that the truly desired attributes of growth potential, probability of attaining additional rounds of funding, and likelihood of bringing favorable media attention to the business plan competition for promoting innovative ideas are difficult to forecast at such an early stage of venture development. Investor judges may assume that more entrepreneurially oriented plans have greater potential to “make a splash”, more easily attract further investment, and have better chances at above-average growth. Thus, we expect:

Hypothesis 1: EO improves investor evaluations of a business plan.

EO and Organizational Hope

Hope represents an influential element within the new venture context (e. g. Hmieleski and Carr 2008), and its expressions may be particularly relevant to early-stage ventures seeking outside investment. Organizational hope is defined as the common goal-directed energy and belief that pathways exist with which to accomplish key organizational goals (Luthans, Avolio, and Norman 2007; McKenny, Short, and Payne 2013; Snyder 2000a; 2000b; Snyder, Anderson, and Irving 1991). While organizational hope has been largely absent from management and organizational science (Ludema, Wilmot, and Srivastva 1997), theory suggests it is relevant to entrepreneurship. The phenomenon of goal-directed beliefs that pathways to success exist (McKenny, Short, and Payne 2013; Snyder 2000) offers a critical potential bridge between entrepreneurially oriented ideas, and perceptions of their attainability by investors.

Indeed, multiple scholars have articulated definitions and explanations of hope that describe a desire for societal transformation (Bloch and Plaice 1986), to influence the future (Polak 1973), and to persevere through uncertain conditions (Ludema, Wilmot, and Srivastva 1997). The emergence of organizational hope within business plans may arise from a need to justify bold, EO-focused proposals. Innovative, pioneering gambles are being proposed, but their outcome is unknown (Pope 1983). Organizational hope nurtures assurance among stakeholders that pathways exist for the organization to accomplish their risk-laden goals (Youssef and Luthans 2007).

As discussed, from a signaling theoretic perspective, entrepreneurially oriented language does not provide a strong signal capable of differentiating higher and lower quality plans. As such, new ventures may turn to hopeful language to help assuage potential investor concerns that their entrepreneurially oriented plan is sound and can and will come true in the future. Given that highly entrepreneurially oriented ideas are ambitious (e. g. claiming to be the first company to offer space tourism), they are likely to intrigue investors. However, with greater EO, comes increased demand for hopeful expressions to offer assurances that the plan will be successful, and that the venture’s gambles are likely to pay off in terms of increased performance. Thus, we propose that with greater EO, hopeful dialogue is more likely in investor communication.

Hypothesis 2: EO leads to expressions of hope within a venture’s business plan.

Organizational Hope and New Venture Funding Potential

Expressions of organizational hope when articulating and crafting business plans may have important implications for how investors evaluate the funding potential of a new venture. While hope can bring about positive results in organizations (e. g. Peterson and Luthans 2003), and support action intended to influence an uncertain future (Ludema, Wilmot, and Srivastva 1997), investors may not perceive these benefits of hope when screening early-stage ventures. Indeed, many descriptions of hope fail to consider the existence, or lack thereof, of supporting evidence that may suggest a justification for hope. This is important given that, as Macquarrie (1978) suggests, hope may not be tied to reality. Waterworth (2004) describes hope as something that is plausible, rather than probable. Thus, we suggest that hope is more akin to, and more likely within, contexts characterized by Knightian uncertainty, or true unknowns, vs. probable, quantifiable risks (Knight 1921). In this vein, Carlsen, Landsverk Hagen, and Mortensen (2012), describe hope as being open-ended, often absent a truly concrete vision of the future. It seems unlikely that a business plan, which aims to present a convincing path to future success, would be evaluated favorably based on hope of adaptation to uncertainty. As failure is the modal outcome of ventures, the potential for false hope is present and expected (Polivy and Herman 2000).

Thus, although one might expect that being very hopeful would benefit ventures by providing an image that many pathways to success may exist, from a screening perspective the value of hopeful discourse may not be immediately evident to investors. Screening theory suggests that receivers focus on signals linked to vague or unverifiable claims (Sanders and Boivie 2004). As hope is considered to espouse positive feelings in the face of uncertainty and unclear paths to future success (Snyder, Anderson, and Irving 1991; Luthans, Avolio, and Norman 2007), potential investors are likely to reject such signals. Increasing hopeful dialogue may therefore have unintended consequences in business plans given that investors are skeptical of claims and screen documents quickly (Kirsch, Gera, and Goldfarb 2009). There is simply no way to determine if the expressed hope is genuine, or represents “false hope”, which may be more readily considered attempts at deception (Snyder 2002). Indeed, investors generally reject plans with unsupported assumptions (Mason and Harrison 2002).

Overall, we suggest that investors “key in” to the use of hopeful language within business plans as attempts to compellingly discuss possibilities that may, or may not, come true in reality. Investors may therefore prefer that hope is not a large part of the venture’s success equation. If a venture’s plan stresses hope then it may inadvertently, and somewhat counterintuitively, present itself as a longer shot at being successful. We posit that all else being equal, less emphasis on hope-oriented language when business planning may be advantageous to early-stage ventures.

Hypothesis 3: Expressions of hope within a venture’s business plan have a negative impact upon investor evaluations of the business plan.

EO, Hope, and Funding Potential

In practice, investors cannot reward all entrepreneurially oriented business plans that they review. Given the skepticism demanded to screen among plans, a communication strategy based upon hopeful dialogue to assure investors of a ventures entrepreneurially oriented prospects of success may fail to convince investors, and unintentionally fall on deaf ears. A lack of believability of hopeful dialogue may help explain weak past connections between venture’s EO and firm fundability (Cox and Sproul 2015). That is, the need to justify an ambitious, EO-focused plan may give rise to hopeful dialogue which investors unfortunately are likely to find unconvincing, thereby suggesting the potential for a competitive mediation effect.

Along these lines we suggest that previous findings may be incomplete, and expressions of EO within business plans may have a weak effect on funding potential because of a competing mediating effect occurring through increases in hopeful discourse. This suggests that, interesting, bold, and pioneering business ideas may grab the reader’s attention given their entrepreneurial nature but may also cause readers to be more skeptical of specific claims (Holaday, Meltzer, and McCormick 2003; Smith, Harrison, and Mason 2010). Indeed, evaluating potential new venture investment opportunities is a highly complex task. Research suggests that given complex nature of evaluation, it is hardly feasible for judges to employ and apply a fully compensatory assessment model, instead they must rely on heuristics for screening as well as other signals that can be gleaned (Maxwell, Jeffrey, and Levesque 2011). For example, recent research findings suggest that perceived passion (Mitteness, Sudek, and Cardon 2012) and impression management (Parhankangas and Ehrlich 2014) can also influence evaluations of investment opportunities by early-stage investors. Thus, applying the tenants of screening and signaling theory outlined previously, we posit that while an eye-catching, entrepreneurially oriented startup idea may grab investors’ attention, it is through a reliance on hopeful expressions that ventures lose their believability. Formally, we propose:

Hypothesis 4: Expressions of hope within a venture’s business plan negatively mediate the relationship between EO and investor evaluations of the business plan.

Hope and Venture Funding – The Moderating Role of Founder Financial Investment

Investors have limited time to screen business plans and employ heuristics to guide their interpretation of a plans viability (Chan and Park 2015; Harrison, Mason, and Smith 2015; Maxwell, Jeffrey, and Levesque 2011). A key heuristic employed by investors that may affect how they screen and interpret a plans viability is the presence (or absence) of substantial past financial investment in the venture prior to their request for funding (Sudek 2006). When founders invest their own money into a startup, the result is increased commitment (DeTienne, De Castro, and Shepherd 2008; Yamakawa and Cardon 2017). Moreover, founder financial investment sends a valuable signal to potential investors that they are firmly committed to the venture and its success (Atherton 2012; Frid, Wyman, and Gartner 2015; Prasad, Bruton, and Vozikis 2000).

Not all ventures are willing or able to convince themselves that they should make a substantial investment in an early-stage venture concept. This suggests that founder financial investment will constitute a stronger cue, or signal, from the early-stage venture which may differentiate higher (and lower) quality plans seeking funding. Moving from screening to signaling theory (Bergh et al. 2014), founder financial investment may constitute a factor that generates a separating equilibrium between ventures being screened, one which provides a meaningful proxy for the venture’s unobservable commitment to their start-up, its long-term success, and potential impact on the world. The presence of founder financial investment suggests that hopeful discourse may be more credible and should be taken more seriously as perhaps elaborating on genuine beliefs, and not merely creative prose or wishful fiction.

Thus, we recognize and highlight the important interplay of screening and signaling theory as two sides of the same coin when parties are communicating in uncertain environments with asymmetric information. When assessing ventures’ potential fundability, how dialogue is interpreted during the screening process may change dramatically in the presence of a credible signal. That is, communication effectiveness may depend on whether messages are believable or not through the inclusion of a credible signal such as founder financial investment. We posit:

Hypothesis 5: Founder financial investment within their venture positively moderates the influence of their use of hopeful discourse when business planning on investor impressions of the business plan. In the presence of founder financial investment, hopeful discourse will have a positive effect on investor evaluations of the business plan.

Taken together, we present our full research model within Figure 1.

Conceptual model of EO, hope, previous investments, and investor evaluations.
Figure 1:

Conceptual model of EO, hope, previous investments, and investor evaluations.

Research Methodology

We obtained data for this research project from a community business plan competition held at a large public university in the southeast United States. Utilizing a business plan competition provides an ideal vehicle for gaining access to rich primary information detailing investor’s initial evaluations of venture potential. Specifically, our data includes 201 submitted business plans from competitions held from 2013 to 2015. The competition is open to anyone including students at the host university, students at other universities, as well as entrepreneurs in the general public. The rules and instructions provided to entrepreneurs submitting a plan were the same for all three years, and all of the plans included in the final analysis were unique with no resubmissions from previous years. To mitigate individual biases, each of the 201 submitted plans was judged by 4 to 12 judges. Judges were screened for their expertise in evaluating business plans and nascent business ideas. A total of 127 judges were employed with the typical judge being either an angel investor or someone working within the venture capital funding ecosystem. Judges are provided ventures’ business plans during the initial evaluation phase, and do not meet, hear pitches, or have any additional contact with entrepreneurs.


Independent Variables. We utilized CATA in order to evaluate our two independent variables, EO and organizational hope. Specifically, a CATA software program, CATScanner, was employed to search each business plan and produce a count of how many times the words from each construct’s dictionary appeared in each business plan. We employ the EO dictionaries created by Short et al. (2010), and refined by McKenny et al. (In press) to measure EO’s core dimensions of innovativeness, proactiveness, and risk taking. We leverage the dictionary developed by McKenny, Short, and Payne (2013) to measure organizational hope with the exception of two words, “innovation” and “innovative”, to ensure full independence of the measures. The removal of these two words did not influence the final organizational hope measure as it had a correlation of 0.99 with the measure of organizational hope that included these two words in the dictionary. The dictionaries for EO and organizational hope are available in Appendix A.

In line with past research, raw word counts were created for each dictionary for each business plan. We added the raw counts for each of the three entrepreneurially oriented dimensions together to capture EO. Finally, we divided each constructs’ raw count by the total number of words in each plan. In effect, this normalized each construct in relation to the length of each plan. After controlling for length, we then multiplied each construct score by 100 to eliminate excessive decimal places and establish scores representing what percent of each plan was written with words evidencing each construct. The EO construct was modeled with this percentage score while the organizational hope construct was modeled using a natural log transformation of the percentage to normalize the score and address a moderate skewness.

Moderating Variable. We examine our moderating variable at two levels of founder financial investment, $5,000 - $49,999 and $50,000 or more. Entrepreneurs were asked “(t)he dollar amount invested in your business to date” with options of “less than $4,999”, “$5,000 - $49,999”, and “$50,000 or more”. Follow-up interviews with each venture confirmed that in all but two cases this investment was chiefly from their own finances. In only two instances additional funding received from angels before the competition augmented the founders’ own investments.

Dependent Variable. We measured investor evaluations of the business plan based on a scale of six items pertaining to fundability, available in Appendix A. For the competition, it is made clear to the judges that these six items are combined in order to create a total score representing the overall funding potential of each business plan. Each judge was tasked with rating each plan on a Likert scale ranging from 1 (disagree) to 5 (agree) across the six criteria. 127 different judges with backgrounds in angel investing or venture capital participated, with some helping each year while other judges could volunteer for only one or two years. A minimum of four judges evaluated each plan and no two plans were subjected to the same judging panel. To facilitate an evaluation of all constructs at the same level of analysis, we aggregated the ratings to obtain an overall funding potential score for each plan. This approach is based on our research question examining venture-level communications. Prior to aggregation, we assessed the funding potential construct in terms of interrater reliability and obtained a ICC(1) score of 0.37 and a ICC(2) score of 0.78, both of which suggest aggregation is appropriate (Chan 1998).

Controls. We control for several considerations in our final model. First, we control for the size of the team submitting the plan to account for the effects of having more than one person working on the business or new venture idea. We also control for the effects of new technology being developed by the team. This was a self-report item that asked the team submitting the plan to identify whether or not their business or idea was actively developing new technology. We control for the writing ability and presentation quality of each plan by asking each judge to rate the plan for overall written presentation on a scale of 1 – 5 in order to control for the written presentation of each plan (grammar, impressions of sophistication, etc.). We also control for the industry of each plan submitted via a self-report item from the entrepreneur submitting the plan. Entrepreneurs had the options of selecting one of the following industries upon submission of their plan: information technology, manufacturing, retail, service, or other. We created four dichotomous variables to use as indicators for the four industry choices. Also, we controlled for the specific year the plan was submitted since data came across three years. Dummy variables were created for the second and third year of submissions. Finally, since both students and members of the public could submit, we added a dichotomous variable of student to assess the effects of those types of submissions.

Analysis Methods

To test our hypotheses, we utilized SEM via AMOS. First, we validated the basic measurement model for our six-item dependent variable to establish validity and reliability via confirmatory factor analysis. We then examined the potential for multicollinearity but found no evidence of this (no VIF score was above 1.18 for the main IVs or 5.62 for the interaction terms). We next tested hypotheses 1–3 via path analysis by evaluating each regression weight’s significance. We tested hypothesis 4 via bootstrapping and evaluating the indirect effects of the overall model to test for the presence of mediation. Specifically, we followed the recommendations by Shrout and Bolger (2002) and Zhao, Chen, and Lynch (2010) by utilizing AMOS to produce 2,000 bootstrapped samples and evaluating the two-tailed, bias corrected, standardized indirect and direct effects of the relationships between the EO dimension and funding potential. Finally, we tested hypothesis 5 by entering the interaction terms into our final model to evaluate for the presence of any moderation of previous investments on the relationship between organizational hope and funding potential.


Confirmatory Factor Analysis. The results of the confirmatory factor analysis for the funding potential construct confirmed that the dependent variable exhibits good validity and reliability. The measurement model displayed good fit: χ2/DF = 0.742, NFI = 0.997, GFI = 0.994, AGFI = 0.972, CFI = 1.000, RMSEA = 0.000 with five degrees of freedom. Four of a possible 15 error covariance paths were freed based on the nature of the items and the suggestion of better model fit from modification indices (Kline 2011). All standardized regression weight item loadings for the six items are significant and above the prescribed 0.7 cutoff (Kline 2011). Finally, the six-item scale had a Cronbach’s Alpha of 0.95, exceeding the commonly accepted cutoff of 0.7 (Nunnally 1978), as well as the more stringent cutoff of 0.8 (Ping 2004). Based on these results, we accept the dependent variable of funding potential as a valid and reliable instrument.

Hypothesis Testing. Means, standard deviations, and correlations for all constructs in the final model are presented in Table 1. The full path analysis model is presented in Figure 2. Our full model, Model 5 in Table 2, ran with the following fit statistics: χ2/DF = 1.475, NFI = 0.894, GFI = 0.891, AGFI = 0.849, CFI = 0.963, RMSEA = 0.049 with 182 degrees of freedom.

Path analysis results.
Figure 2:

Path analysis results.

Table 1:

Means, standard deviations, and correlations.

Table 2:

Path analysis results on investor evaluations DV.

H1 was supported as shown in Table 2 and Figure 2; EO has a positive relationship with funding potential. H2 was also supported as shown in Table 2 and Figure 2; EO also exhibits a positive effect on organizational hope. In total, H1 and H2 paint a clear picture concerning the relationships between EO and organizational hope. There appears to be strong overall support that EO is generally associated with the development of organizational hope along with higher levels of funding potential. Thus, when communicating to investors, entrepreneurs pitching business plans with more EO, something investors’ value as examined in H1, also tend to express their hope that the business plan will be successful. Table 2 and Figure 2 also show the results for H3. We found that organizational hope has a significant negative relationship with funding potential. H3 lends full support to the idea that expressions of organizational hope appear to weaken ventures’ funding potential when scrutinized by investors.

We tested H4 by evaluating the two-tailed, bias corrected, standardized indirect effects of the relationships between EO and the funding potential dependent variable based on 2,000 bootstrapped samples. We tested for the indirect effect through organizational hope alone as it is the only variable creating an indirect path from EO to funding potential. Results indicate that EO has a significant negative indirect effect on funding potential through organizational hope at the p < 0.01 level. Further, as shown by both Models 3, 4, and 5 in Table 2, EO has a positive significant relationship with funding potential even with the mediator of organizational hope is present. In accordance with Zhao, Chen, and Lynch (2010, pg. 201), we can conclude that the relationships between EO, organizational hope, and funding potential exhibit competitive mediation. We reach this conclusion based first on the significance of the indirect effect above, and second, on our results displayed in Figure 2 that show the positive and significant relationship that EO has with hope and funding potential while hope simultaneously has a negative and significant relationship with funding potential. This type of mediation suggests that there may be another theoretical mediator that may be identified in future research to further strengthen the hypothesized model.

Finally, we test H5 by evaluating Model 5 in Table 2. We found support for both H5a and H5b. Specifically, the effect of founder financial investment dampens the significant negative relationship between organizational hope and funding potential at both levels of founder investment we investigated. In order to visualize these effects, we have plotted the results utilizing the unstandardized regression weights of two models that only contained one of the moderating variables at a time. These visualizations are presented in Figure 3 and Figure 4. Based on these visualizations, along with the standardized effects from Model 5 in Table 2, a larger previous investment has a greater effect of dampening the negative relationship between organizational hope and funding potential. However, in terms of both levels of previous investments, having these investments present are enough to turn the strong negative relationship between organizational hope and funding potential into a non-existent or even slightly positive relationship.

$5,000–$49,999 moderating effect on the relationship between organizational hope and investor evaluations.
Figure 3:

$5,000–$49,999 moderating effect on the relationship between organizational hope and investor evaluations.

$50,000 moderating effect on the relationship between organizational hope and investor evaluations.
Figure 4:

$50,000 moderating effect on the relationship between organizational hope and investor evaluations.

In total, these findings show that the relationship between EO and funding potential is negatively mediated by organizational hope, while the relationship between organizational hope and funding potential is positively moderated by the presence of previous investments.1 These findings suggest that expressions of EO in a business plan are good for the plan’s chances of being evaluated positively by potential investors. However, EO also tends to cause expressions of organizational hope to be manifest in the plan that investors do not inherently view favorably. This negative relationship between organizational hope and funding potential can be mitigated if the venture evidences financial commitment and “skin in the game”.


Overall, we provide new and indepth insight into how the entrepreneurial strategic posture of early-stage ventures, as communicated to investors within business plans, contributes to expressions of hope, and how this hopeful discourse subsequently influences the evaluation of ventures’ funding potential. Most research on EO has focused on established firms and exhibited a significant survival bias (Wiklund and Shepherd 2011). As a rare study exploring entrepreneurially oriented communications within very early-stage ventures, many are still in the “honeymoon phase” before failure rates begin to markedly increase. Strong support is found for our thesis that entrepreneurially oriented venture proposals rely on hopeful discourse in their communications with investors and that this usage may reduce their perceived funding potential in the absence of a stronger signal of venture quality, such as founder financial investment. Our findings support assertions that early-stage ventures are well served by having skin in the game, and a financial stake in the company. Our overarching model, theory, and observed empirical support has several important implications for future research, practitioners, and educators.

Our research demonstrates that early stage ventures favorably evaluate and screen plans for EO. However, this EO leads to greater hopeful discourse which investors find untenable in the absence of notable founder financial investment. Thus, past research on the EO-funding relationship had been agnostic to the hopeful discourse that stems from attempts to convince investors of the feasibility of more ambitious, entrepreneurially oriented, business plans. As early stage entrepreneurially oriented ventures confront Knightian uncertainty (Knight 1921) and are working to fill in many unknown aspects of their business model (Blank 2013), they represent an organizational context likely to be filled with hope about pathways to success (Luthans, Avolio, and Norman 2007). We provide clarity to this literature by evidencing competitive mediation in the EO-funding relationship. Investors, intrigued by EO, screen plans for entrepreneurial content, tone, and dialogue as a proxy for ventures’ overall potential, but, at the same time, are naturally skeptical of the hopeful pathways discussed to achieve these entrepreneurially oriented claims.

In terms of signaling theory, our study suggests that investors considering, and screening business plans are not impressed by entrepreneurial or hopeful dialogue. Despite assertions in past research examining IPO firms (Mousa, Harper, and Wales 2015) or crowdfunding campaigns (Moss, Meyskens, and Neubaum 2015), our findings suggest that entrepreneurial and hopeful dialogue do not constitute a strong signal of firm quality within the context of business planning. That is, such dialogue does not provide a means by which new ventures can achieve a stable separating equilibrium from their peers when judges are quickly screening plans for exceptional submissions. That is, judges appear to consider such dialogue as having little credible impact upon ventures’ potential performance. EO dialogue is expected, and nice to see, but isn’t considered a differentiator between low and high-quality ventures. This is interesting given past observations that aspects of entrepreneurial dialogue within crowdfunding campaigns may correlate with ventures that receive micro-loans but have little impact on whether those loans are repaid (Moss, Meyskens, and Neubaum 2015). Our results suggest that, perhaps, whether a new venture’s signals are believable may be strongly influenced by the context within which the signal is transmitted (Connelly et al. 2011). That is, early stage business planning incentivizes exaggeration and hopeful dialogue, absent a regulatory body (Mousa, Harper, and Wales 2015) or platform with partner organizations (Moss, Meyskens, and Neubaum 2015) to enforce realism and add credibility to dialogue-based signals presented to investors.

In terms of screening theory, investors screen plans for EO as a favorable observable characteristic within business plans when the truly desired attributes of growth potential, probability of attaining additional funding, and likelihood of bringing favorable media attention to the business plan competition are difficult to forecast at this early stage. Thus, we provide critical insight into how plans are screened in the context of competitions by demonstrating that EO gives rise to hopeful discourse, and it is this discourse which inadvertently influences investor’s impressions of early stage plans. This insight improves our understanding of how screening theory is manifest among and within business plan competitions.

One way to pass investors’ screen of disbelief is to have attained substantial founder financial investment in the idea before entering the competition. Investor judges seem unwilling to favorably interpret hopeful discourse in the absence of a stronger, more reliable signal of the firm’s quality. Yet, in the presence of founder financial investment, judges markedly change their impressions of hope-filled expressions. Thus, the answer to the question of whether ventures should engage in more hopeful discourse within their business plan is: it depends. In the case of having produced notable founder financial investment, hopeful discourse is favorably evaluated, demonstrating how the presence of stronger signals can meaningfully augment judges’ screening heuristics. If a venture has attained founder financial investment, hopeful discourse is encouraged, or expected by investors. If not, then it is best for the venture to minimize such discourse in their submitted plan and, to speculate, to focus more on what they consider to be their single most promising pathway based upon customer discovery and why this particular investor audience should be the first dollars into the venture. In effect, we have shown that early-stage firms lacking prior founder investment suffer from a difficult predicament in business plan competitions as they must try to express the necessary levels of EO that investor’s favor, without being too reliant on hope when explaining their plan for the future.

Our theory and subsequent empirical results help answer the question as to why, so few early-stage organizations receive initial funding; it is due to a very delicate balancing act that firms must display via the business plan that depicts EO without too much emphasis on hopeful discourse unless such assertions are accompanied by founder financial investment in their venture before the competition. Thus, while it might seem like a “chicken and the egg” problem, an important task for ventures before entering the business plan competition is to find a way to make a substantial financial investment in their venture to offer a strong signal of commitment.

Future Research Directions

In terms of additional future research areas, our study examines the moderating role of founder financial investment, however, question remains if the results hold when the investment is from other sources such as previous grants, competitions, debt financing via banks, or equity financing via angel investors. Potential nuance to the study findings is possible as other investment sources may be similarly consequential. It is possible that past investment from other investors, such as angels, etc., may accentuate a band-wagon effect in which the judges more favorably screen a plan. Moreover, how do the relationships hold across different types of investment? It may also be interesting to consider how the results could change when moving from an early to later stage investment context. In later stages, is hope more beneficial? Does founder financial investment take a back seat to expectations of investments from other angels? Investor backgrounds may also be worthy of greater consideration in future research, as having a particular background may affect what the investor judge considers relevant, important, and a useful screening heuristic. We offer these questions for future research.

As for the efficacy of business plan competitions as a screening mechanism for future venture success, the literature is not particularly clear in this regard, lacking the necessary long-term studies to convincingly demonstrate their ability to predict future high growth ventures. It is our hope that additional research will provide greater insight into competition judges as efficacious harbingers of venture’s long-term prospects. This relationship may also be examined in terms of a self-fulfilling prophecy as winning a business plan competition signals greater potential for success to a wide variety of relevant organizational stakeholder groups.

Within the hope literature, we identify a highly relevant entrepreneurial context in which hope, in a communicative form, can have negative or detrimental implications. This is in contrast to the positive implications that organizational hope has often been associated with (e. g. Avey et al. 2011). Our results suggest that key contexts and instances exist in which hopeful dialogue may have unintended implications when interpreted within appeals to judges, such as investors, that have yet to be identified or considered. We believe that future research will also benefit from the continued utilization of the CATA methodology when assessing various types of formal and informal communications that early-stage ventures prepare while moving through the entrepreneurial process. For example, similar analyses can be applied to venture’s websites, social media, award applications, and internal communications.

Finally, practitioners should communicate their anticipated entrepreneurial plans with some caution. That is, entrepreneurs would be wise to recognize that their early-stage startup context, characterized by considerable uncertainty and lofty expectations, unassumingly leads to hopeful expressions as ventures propose highly entrepreneurial actions. Given investor skepticism, if the firm is unwilling, or unable, to make a substantial financial investment in their venture before seeking investor approval, such hopeful discourse is likely to fall on deaf ears.


A Study Measures

Entrepreneurial Orientation (McKenny et al. in press)
Innovativeness:“ad lib, adroit, adroitness, bright idea, clever, cleverness, conceive, concoct, concoction, concoctive, conjure up, creative, creativity, develop, developed, dream, dream up, expert, formulation, freethinker, genesis, genius, gifted, hit upon, imagination, imaginative, improvise, ingenious, ingenuity, innovate, innovated, innovates, innovating, innovation, innovations, innovative, innovativeness, introduced, introducing, introduction, introductions, invent, invented, invention, inventive, inventiveness, inventor, launch, launched, launching, master stroke, mastermind, metamorphose, metamorphosis, neoteric, neoterism, neoterize, new capabilities, new capability, new compounds, new content, new core areas, new course, new directions, new family, new features, new generation, new generations, new idea, new ideas, new line of business, new medicine, new medicines, new molecular entities, new pharmaceuticals, new platform, new process, new processes, new product, new products, new solutions, new systems, new technique, new techniques, new technologies, new technology, new therapies, new thinking, new tools, new treatments, new ways, new wrinkle, new-generation, new-product, next generation, next-generation, novation, novel, novelty, patent, patented, patents, process development, product development, product launch, product launches, proprietary, prototype, prototyping, push the envelope, R&D, radical, re-engineering, reformulated, refreshed, reinvent, re-invent, reinvented, reinventing, reinvention, reinvents, released, renewal, renewing, research, reshape, reshaped, reshapes, reshaping, resourceful, resourcefulness, restyle, restyling, revolutionary, revolutionize, revolutionized, roll out, rolled out, see things, technologically advanced, think up, trademark, transform, transformation, transformed, transforming, visualize”
Proactiveness:“anticipated, anticipation, anticipation, capitalize, capitalized, capitalizes, capitalizing, exploratory, explore, foreglimpse, foreknow, foresee, foretell, formulate, formulates, formulating, foundation, impatient, industry’s first, initiative, initiatives, inquire, inquiry, investigate, investigation, lead, looking ahead, move ahead, opportunistic, opportunities, opportunity, pave the way, pioneer, pioneered, pioneering, pioneers, plan, poised, positioned, positioning, positions, preparations, prepare, preparing, proactive, prospect, prospects, roadmap, scrutinization, take advantage, well-poised, well-positioned”
Risk taking:“adventuresome, adventurous, audacious, bold, bold-spirited, brash, brave, chancy, courageous, danger, dangerous, dare, daredevil, daring, dauntless, dicey, fearless, gutsy, headlong, incautious, intrepid, plunge, precarious, rash, reckless, risky, temerity, venturesome, wager, hardship, hardships, no place to hide, no safe path, ambitious, ambitiousness, mega-ambitious, not for the faint-hearted, jeopardy, riskiest, risk taking, risk-taking, challenging ourselves, challenged ourselves, challenge ourselves”
Organizational Hope (McKenny, Short, and Payne 2013)
“accomplishments, achievements, approach, aspiration, aspire, aspired, aspirer, aspires, aspiring, aspiringly, assurance, assurances, assure, assured, assuredly, assuredness, assuring, assuringly, assuringness, belief, believe, believed, believes, believing, breakthrough, certain, certainly, certainty, committed, concept, confidence, confident, confidently, convinced, dare say, deduce, deduced, deduces, deducing, desire, desired, desires, desiring, doubt not, energy, engage, engagement, expectancy, faith, foresaw, foresee, foreseeing, foreseen, foresees, goal, goals, hearten, heartened, heartening, hearteningly, heartens, hope, hoped, hopeful, hopefully, hopefulness, hoper, hopes, hoping, idea, ongoing, opportunity, promise, promising, propitious, propitiously, propitiousness, solution, solutions, upbeat, wishes, wishing, yearn, yearn for, yearning, yearning for, yearns for”
Investor Evaluations of Business Plan
(1) The team can effectively develop this company and handle the challenges associated with the venture. If the management team does not have any required skill or experience, a credible plan has been provided to access it, e. g. via an advisory board. (2) There is a clear definition of the product/service offered and the market need to be served, as well as a way to take advantage of that market need. The target customer and market size are well defined and quantified. The market shows high potential. (3) The competing products/services and their marketers are analyzed well. The company provides something novel/unique/special that gives it a competitive advantage in its target market. Its plan to develop and commercialize their product/service is clearly described and is credible. (4) The team has a solid understanding of the financial requirements of the business. The bases for revenues, expenses, capital expenditure projections (if applicable), as well as external funding requirements, are clearly described and are credible. (5) The business plan describes any major business or technology risks that are foreseen, as well as contingency plans to overcome them. The milestones for measuring success at different stages of implementing the business plan for the venture are clear and credible. (6) Investment Profile: The venture’s profitability, risk and return on investment profile are attractive. The business represents a real investment opportunity complete with milestones at the different stages of product/concept development in which you would consider investing.


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  • 1

    For robustness, we examined the relationship between EO and funding potential for curvilinearity and observed that there was no evidence of this relationship. 

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Published Online: 2018-10-23

Citation Information: Entrepreneurship Research Journal, Volume 9, Issue 3, 20180114, ISSN (Online) 2157-5665, DOI: https://doi.org/10.1515/erj-2018-0114.

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