Breaking “Bad”: Negativity’s benefit for entrepreneurial funding

Abstract

How does sentiment in a pitch affect an entrepreneur’s fundraising outcomes? Although research suggests that negativity in entrepreneurial “pitches” to investors adversely impacts resource acquisition, there is a lack of empirical research showing whether, and to what extent, this is true. We study over 30,000 entrepreneurial loan requests from one of the largest loan marketplaces to understand how the sentiment in text-only pitches to investors affects fundraising. In contrast to prior literature, we find that negatively-worded pitches are funded faster than positively-worded ones. We also find that negatively-worded pitches result in lower interest rates to entrepreneurs. Finally, we find that negatively-worded loans default less, suggesting that the benefits of negativity are not one-sided but two-sided: negativity helps both resource seekers and resource providers. Collectively, the results from our study reveal how negativity can be beneficial in impression management and offer fresh insights for the psychological foundations of entrepreneurship.