Seeing Both Sides: How Shared Experience Can Improve Entrepreneur Evaluations of Investors Through Perceived Empathy

Scholarly attention in the venture funding literature is primarily devoted to tie selection, with a great deal of that attention focused on the perspective of the investor evaluating the entrepreneur as a candidate for funding. But venture funding can be conceptualized as a long-term, dual-sided matching process. Two mixed methods studies offer support for a specific basis of background similarity that can influence entrepreneur evaluations of investor tie potential: shared entrepreneurial experience. An archival study of 677 entrepreneurs evaluating 408 investors demonstrates that investors with entrepreneurial experience are more likely to be perceived as empathetic than investors without this experience. In turn, entrepreneurs rate investors whom they perceive to be empathetic more favorably than those they do not perceive to be empathetic. Perceived empathy thus emerges as a mechanism that serves to mediate the positive relationship between shared entrepreneurial experience and entrepreneur ratings of investors. A preregistered between-subjects experiment conducted on 481 entrepreneurs exposed to otherwise comparable investor profiles randomized for experience complements the correlational evidence from the archival study with causal support for each of these paths. Shedding light on the key components of perceived empathy, linguistic analyses indicate the extent to which cognitive perspective taking (understanding how the entrepreneur thinks) and affective perspective taking (understanding how the entrepreneur feels) mediate the effect. Gender implications are discussed as this work also documents that women are less likely to traverse the path from entrepreneurship into investing, restricting their ability to reap these relational upsides. Funding: This research was supported by faculty budgets at London Business School and Georgetown University. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2023.18429 .