Forecasting the probability of success of an early-stage startup is challenging, in part, due to the scarcity of performance metrics at the initial stages. In a recent study, researchers Freiberg and Matz examined the degree to which founder personality was predictive of four different startup outcomes: (1) whether seed funding was secured, (2) the amount of money obtained in seed fundraising, (3) the number of investors acquired in seed fundraising, and (4) startup exit through acquisition or IPO. Using models initially trained on a large personality dataset, researchers generated founders’ Big-Five personality profiles based on the language they used in Tweets within the last two years of establishing their startup and examined the associations between these personality profiles and startup outcomes.
High Openness and Agreeableness Associated with Seed Fundraising Success
Results showed that founders high in openness and agreeableness were more likely to secure seed funding, but these same traits were unrelated to exit outcomes. High founder openness and agreeableness are likely to enhance the success of securing seed funding because open and agreeable founders are often perceived as collaborative, receptive to feedback, and adaptable, fostering positive relationships with investors and creating an environment conducive to teamwork and shared success, factors that are attractive to potential backers.
High founder openness and agreeableness may be unrelated to successful exits because, while these traits contribute to positive team dynamics and collaboration, the ultimate success of an exit often depends on a complex mix of market conditions, strategic decisions, and competitive factors that go beyond individual personality traits. Additionally, the negotiation and strategic skills required for a successful exit may not be exclusively tied to traits like openness and agreeableness.
Neuroticism Associated with Negative Outcomes
Founders high in neuroticism raised less capital in seed funding rounds, attracted fewer investors, and their startups were less likely to achieve a successful exit. These results are consistent with a large body of research demonstrating that neuroticism negatively correlates with leadership effectiveness. Those high in neuroticism are often impulsive and emotionally unstable, which may serve as warning signs for early investors.
High Conscientiousness Predicts Amount of Seed Capital Raised but Not Successful Exits
Freiberg and Matz also found that highly conscientious founders raised more capital at the seed stage, although from fewer investors, and they were less likely to realize a successful exit. Conscientiousness is often considered a valuable trait in founders, as it encompasses qualities such as reliability, organization, and attention to detail. At the seed stage, investors are more likely to be interested in conscientious founders as they are more likely to meticulously plan and have financial discipline, which enhances confidence in the founder's ability to effectively navigate the challenges of startup growth.
Extraversion is Unrelated to all Startup Outcomes
Founder extraversion was not a significant predictor of any of the four startup outcomes, which may indicate that as important as characteristics like effective communication and relationship-building skills are, they’re only some of the many founder attributes that contribute to overall startup success.
Next steps for startup investors and acquirers
Freiberg and Matz’s findings substantiate how founders’ language-based personality can predict whether a startup succeeds at each stage of growth. By assessing founder personality through language analysis, VCs can better inform their investment decision-making processes.