02.10.2021

Need Funds? Ask Investors on A Sunny Day

How and why can irrelevant, short-lived factors shape investment decisions? This can happen in investment decisions in nascent, seed-stage startups, where information is scarce and uncertainty is intense.

Taking sunshine on the day of deal evaluation as a context, we show that in the face of intense uncertainty, sunnier days may affect investors’ mood and result in a greater likelihood of investment. We demonstrate the effect through two complementary studies.

The first utilizes proprietary data on 1,300+ startups graduating from European accelerators. Every accelerator holds a Demo Day, where startups pitch to investors. We find that graduating on a ‘sunnier’ day increases the likelihood of investment. The ‘sunnier’ effect is stronger under intense uncertainty, where startups (a) are nascent, or (b) the founders have limited human-capital. An experimental study where prospective US investors evaluate a Demo Day pitch yields further insights. Not only do we again find a positive sunshine-investment association, but also show that the underlying reason is investors’ mood.

Management insight: Our findings contribute to the understanding of seed-stage investment decisions. Namely, we call for both investors and entrepreneurs to be more aware of mood triggers and prepare so that such irrelevant frictions are minimized.