Heavenly ventures: How famous business angels boost performance

Reality shows that see hopeful entrepreneurs pitch business ideas to would-be investors have enjoyed global success for decades. International iterations of the format that originated in Japan in 2001 as The Tigers of Money, including Dragon’s Den (UK and Canada), Shark Tank (United States) and Die Höhle der Löwen (Germany), continue to captivate millions of prime-time viewers. 

Household names such as Scrub Daddy cleaning products in the US, Canada’s Endy mattress company and Austrian beverage company Waterdrop all received investment from the business angels (or BAs) on the shows. But some of the most successful names to appear on the show were turned away by the investors. The most successful reject was the Ring doorbell: pitched to the US sharks by Jamie Siminoff in 2013 to much criticism and no deal, the company was bought by Amazon for $1.2 billion just five years later. 

A BA with high levels of public recognition, particularly within the business sector in question, has a significant impact on reducing failure and increasing sales

What happens when the cameras stop rolling can have a significant impact on the success or failure of the business ideas pitched to the panels. But how much of that success is down to publicity of being on the show itself, and what impact does the affiliation with investors have on sales?  

The influence of angels

While many members of the judging panels on the shows are successful entrepreneurs with proven track records, others are more well-known for their celebrity status than business acumen.  

To assess the influence of the BAs and their backgrounds on venture performance, Esade’s Assistant Professor Daniel Blaseg and Lars Hornuf from the Faculty of Business and Economics at TU Dresden analyzed a sample of more than 2,900 early-stage ventures that pitched to the Canadian, German, UK and US versions of the shows.  

The simple promise of investment from a well-known BA and their “stardust” was enough to leverage recognition in terms of web traffic and sales

The researchers analyzed 657 episodes broadcast over 15 years to assess the relevance of several factors known to affect the performance of funded ventures. Variables included the financial resources provided to winning pitches, the professional reputation of the BA, the similarity between the profession the BA is known for and the ventures they funded, and a range of other factors. 

Their findings, published in Entrepreneurship Theory and Practice, have important implications for entrepreneurs keen to attract funding from the growing number of high-net-worth people, often celebrities, who are seeking start-ups to support. 

Crunching the numbers

The researchers manually edited the episodes into 3,260 distinctive pitches. Machine-learning algorithms were then trained to extract the text overlays on each video and transcribe speech into text. 

The resulting original datasets using a set of variable search terms were supplemented with information from online databases including Crunchbase, CB Insights, Dealroom and Pitchbook. The information obtained from the searches, which included the date of venture registration, the organizational form of the venture, the websites, and the location of headquarters, was all added to the datasets.  

The outcomes of each venture 24 months after the show aired were measured by search variables including insolvency, web traffic and products listed on Amazon.  

The investors’ level of celebrity and connection to the product is an increasingly important factor in entrepreneurial success

To address the key question of whether business acumen or celebrity recognition had a greater impact on a venture’s success, the researchers turned to the Google Trends index. The most important variable of the research was the degree of recognition the BA enjoyed from the public. A high-profile celebrity BA such as Serena Williams is guaranteed to return millions more results than a business-focused BA such as Naval Ravikant — highly respected by other investors but with a much lower public profile.  

To allow for this, the researchers used a controlled set of variables and benchmarks to separate mentions of investors that were related to the show and the ventures they backed. Crunchbase, CB Insights, Dealroom, Pitchbook and Wikipedia were also used to identify which investors were major shareholders or CEOs of ventures with at least 100 employees. 

The stardust effect

Not all the deals offered during the show were honored, which the researchers say is likely due to the due diligence of the potential investors after the show. Of the 45.8 percent of entrepreneurs offered deals, 38.1 percent received the investment.  

However, while not all deals were delivered, the results revealed that the simple promise of investment from a well-known BA and their “stardust” was enough to leverage recognition in terms of web traffic and sales. This impact was even stronger when the professional activities of the BA were associated with the business venture being pitched.  

Other key findings revealed:

• A higher level of recognition of the BA reduced the probability of venture failure by 7.9%, increased web traffic by 48.3% and sales by 57.6%. 
• In 10.5% of the successful deals, the BA became a board member of the venture. This reduced the probability of failure by 15.3%, increased web traffic by 128.7% and increased sales by 125.7 percentage points. 
• The average investment received was around $US248,000, but those that received at least US$1 million were 30.9% less likely to fail 
• Web traffic of the average venture featured on the show increased by 487.68 percentage points, and the Amazon sales rank increased by 204.33 percentage points 
• 37.6% of ventures that received an offer on the show failed within 24 months. 

These results are particularly important for entrepreneurs seeking backers. A BA with high levels of public recognition, particularly within the business sector in question, has a significant impact on reducing failure and increasing sales.  

As the number of celebrities and public figures seeking out start-ups to invest in continues to grow (according to Tide reports using Crunchbase data, US$12.8 billion was invested by “well-known people” in the last 10 years), the evidence will help them to select the recipients of their funds wisely. 

The research concludes that while the traditional considerations of entrepreneurs when approaching or selecting investors, such as professional experience and the amount of funds on offer, are relevant, their level of celebrity and connection to the product is an increasingly important factor in success.