Ego trip: a journey to nowhere?
Research Paper Title:
“Do I have a big ego? Angel investors' narcissism and investment behaviors”
Authors:
Background:
Angel investors wealthy individuals who provide essential funds for start-ups often invest under conditions of extreme uncertainty. This study shows that angels’ egos can play a significant role in their investment decisions the bigger the ego, the larger and more diverse the deal, and the lower the number of co-investors. It also examines low past investment performance as a motivator for narcissistic individuals because it can pose a threat to one’s ego leading them to engage in more aggressive behaviors. This research finds that upon receiving negative performance feedback, highly narcissistic angels are motivated to engage in larger deals and a higher level of portfolio diversification.
Highlights:
The authors draw on the threatened egotism theory to examine the effect of angel narcissism on angels’ investment behaviors and the moderating role of past investment performance.
The authors propose that angel narcissism is positively related to deal size and portfolio industry diversification but negatively related to the number of co-investors.
The authors propose that the effects of angel narcissism on their investment behaviors are stronger when past investment performance is lower.
The authors find that, compared with an angel with a minimum narcissism score, an angel with a maximum narcissism score engages in investments with $4.2 million more, is 21.1 % more likely to diversify into different industries, and is 30.2 % less likely to have co-investors.
The authors find that when past investment performance was low, an angel with a maximum narcissism score engages in investments with $2.9 million more and is 33.4 % more likely to diversify into different industries, compared with an angel with a minimum narcissism score.
Methodology:
Sample Description: Angels in U.S.A
Sample Size: 133
Analytical Approach: Longitudinal analysis
Hypothesis:
H1. Angels’ narcissism will be positively related to deal size. (supported)
H2. Angels’ narcissism will be positively related to portfolio industry diversification. (supported)
H3. Angels’ narcissism will be negatively related to the number of co-investors. (supported)
H4. The effect of angels’ narcissism on deal size will be more positive when past investment performance is lower. (supported)
H5. The effect of angels’ narcissism on portfolio industry diversification will be more positive when past investment performance is lower. (supported)
H6. The effect of angels’ narcissism on the number of co-investors will be more negative when past investment performance is lower. (not supported)
Results:
Highly narcissistic angels prefer large deals, have a diverse investment portfolio and tend to invest in deals with fewer co-investors.
Upon receiving negative performance feedback, highly narcissistic angels are motivated to engage in larger deals and a higher level of portfolio diversification.