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Welcome back

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In the second session, 
as I already mentioned,

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we are going to talk about

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the scholarly research
related to the investors

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So, we are going to understand investors

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from some researches

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It can be very helpful for us
to understand investors

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Let's begin with this study

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This study is really great

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This study tried to
answer the question about

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How investors determine about start-up

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and how they distinguish

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good start-up and bad start-up

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The researchers observed

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five angel clubs over two years

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It takes a long time

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They attended 17 monthly meetings,

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conducted 82 interviews,

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and they observed 18 investment decisions

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They found out that
the first one, investors

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Investors' need for
extraordinary investment returns

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They don't want

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1% profit or 10% profit

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They said that

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We want to find out 
diamond in mud like this

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Suppose that you are the keys

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who are looking for the diamond in mud

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Surprisingly, you can
find out diamond from mud

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This is what the investors need

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Again, they don't want a 10% profit

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They don't want 20% profit

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They need 200 times profit

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10,000 times profit,
something like that

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This looks like a diamond in mud

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Second, the investors

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acknowledge that
they can lose their money

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And they said that

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You miss 100% of the shots
you don't take

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So, although you know
you will lose the money,

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investors put their money into the startup

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Why?

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Because they don't want to miss out

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This is the kind of fear of missing out

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It's about home run hitters

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It isn't really hard to hit the home run

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But if you miss the plate,

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then you miss the shot 100%

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That's why

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they join this investment a little bit

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Third

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Their decisions

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Their decisions rely on their feeling

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rather than the data

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Although they studied
the data of the startup,

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when they make a decision
for the investment,

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they rely on their own feeling

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rather than the data about the startup

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The investor said that

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You can tell in the first
5 seconds of a meeting

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The investors understand

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whether this startup is good or not
within five seconds

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Something like this

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Investors can figure out

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which business is good,

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which founders is good within five seconds

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Because they rely on their feeling

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Let me summarize the result
found by the research

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From the research, 
we can understand that

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Investors are someone

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who search for the diamond in mud

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Swing for home runs

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even knowing the high risk of the failure

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And lastly, rely on
their intuition rather than data

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What do you think?

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Isn't it insightful?

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Before I read this research,

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I didn't understand the investors too much

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But after then, right now,

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I'm able to understand

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what investors are looking for,

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how they think and how they behave

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Let's move on to another research

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related to the investment and investors

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Look at her

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She is my colleague

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and we studied in the same university

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When I entered the university 
as a Ph.D. program,

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she graduated from the program

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and then we met in a scholarly conference

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Over there, she introduced
her research about investment

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She said that

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she conducted research about the question,

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How do investors determine

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She observed and interviewed

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angel investors from Tech Coast Angels

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More specifically,

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she analyzed
57 angel investors' investments

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Then, she found out that

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There is a process

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like a job recruiting process

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From the Application to the Funding

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For example

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So many startups applied

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their business idea to the angel club

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and six of them get rejected

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Only 40% of them
proceed to the next stage,

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which is a Pre-Screen stage

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So many startups

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are also rejected
at the Pre-Screen stage

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and only 25 or less startups

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proceed to the Screening stage

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Screening stage is kind of
a job interview stage

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Startups are invited

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to the job interview by the investors

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Investors ask several questions

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and the startup answer those questions

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If startups' answers are great,

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then they proceed to
the Due Diligence stage

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Due diligence stage is very critical

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Because the investors

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actually visit your workplace

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and actually discuss
about your business idea

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with your consumers and your suppliers

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They try to understand

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what you have,

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what your business model is,

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and what your technology is

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They try to investigate
everything about yourself

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Due Diligence refers to

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a deep study conducted by the investors

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If your Due Diligence was successful,

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then you are finally
invited to the dinner meeting

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In the dinner meeting,

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you have just 50% of the chance

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One out of two rejected

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Only one was
successfully selected as Funding

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So overall, fewer than 4% of the startup

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can be funded out of 100 startups
that applied this process

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So competitive, isn't it?

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This is the investment process

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And she identified those process

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Also, second topic of her research

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is about investment criteria

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Then she asked about
the investment criteria to the investors

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Her answer was

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Investment criteria vary by stage

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More specifically, before due diligence,

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what happened?

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Founding team and founder

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Founder or founding team
is the most important factors

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So, the investors just focused more

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on founders or founding team

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before the due diligence stage

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But what happened after due diligence stage?

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After due diligence stage,

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your business model, your business itself

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and your business details

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can become the more critical factors

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I will show you the picture

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I will give you the picture
described by her

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If you apply your business idea
to the investment process

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then probably, you go through

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application, pre-screen
and screening stage

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According to her,
before the due diligence

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your investors just focus on
entrepreneurs or entrepreneurial team

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as a key criteria of
the decision making for the funding

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What happened after due diligence?

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After due diligence,

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investors just focused
more on the business

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rather than entrepreneurs
or entrepreneurial team

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Isn't it insightful?

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So if you're at stage in the screening,

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then you care for yourself

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and you care for your founding team

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But if your stage is
after the due diligence,

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then you emphasize on 
your business model

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and business itself

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Let's move on to various topic about

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influencing factors
on investment selections

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I'm going to talk about founder or team

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And I'm going to talk about Preparedness

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and then Game Changing Vision,

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then Passion and Positivity

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Let's look at this research

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This research was conducted by

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the Stanford University professor
at that time

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The researchers just got the question

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Which startups do investors prefer?

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Which startups?

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So they conducted

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a randomized field experiment
through the AngelList

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Have you heard the name of the AngelList?

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AngelList is a website platform

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to connect angel investors and startups

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And of course,
there are many angel investors

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who are looking for great startup

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So the AngelList send out the email

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that include great information
about the startup

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So, the angel investors
who registered for the AngelList

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can receive the email
about the startup's information

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And there's a rule

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AngelList has just 
three information in email

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The first information is about

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Founding team's information

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Second information is about

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The current investment history information

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And the third information is about

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Current transaction information

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Such as revenue or profit

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Important thing is,

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if a certain startup
has three good information,

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then AngelList provides

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three good information contained email

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to the angel investors

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But if the startup has
one or two good information

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and another information is not good,

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then, AngelList provides email contained

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only good information included

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Do you understand that?

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For example

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You and your team 
graduated from Ivy League University

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and had a job experience on

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Google or Facebook

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Then, we say

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You have a good information
about the founding team

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But you don't have any funding history

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and you don't make any money

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So, you don't have
any transaction record,

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you don't have 
any previous funding history

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So, in this case,

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AngelList send out the email
about your startup profile

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that contain only 
the founding team information

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Do you understand this mechanism?

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For this research,

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the researchers sent out

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16,981 emails with 21 startup profiles

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and they organized

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many different types 
of the startup information

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To how many investors?

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4,500 investors

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So, the investors received

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so many different types of
the startup profile

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with the different types of information

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Some startup has a great founding team

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Other startup has a great result
about their revenue right now

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Something like that

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So, the researchers analyzed

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Which information
do the investors respond to?

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What kind of information
is important for them?

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What about the result?

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The result showed that

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the most important information
for the investors is

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Founding team

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It's very interesting

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So, the angel investors
respond to the startup

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that has great founding team information

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Another important thing is

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The more experienced the investors,

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the more they emphasize the team

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In other words,

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the less experienced investors,

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the more they look at more information

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But experienced entrepreneurs
just focus on the founding team

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Because they knew the other information

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is not important in this stage

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The most important
information in this stage is about

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the team or people and the founders

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So, the founding team is very important

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So, founder itself

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Not previous funding and current revenue

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Don't worry about your previous funding

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and don't worry about your current revenue

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As long as you have
great founders and great founding team,

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you will be okay

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Let's move on to
another research about the investors

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This research analyzed
14 episodes of the Shark Tank

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You watched
the Shark Tank episode before, right?

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Shark Tank is a business reality show

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launched by ABC in 2009

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where the entrepreneurs pitch their ideas

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to receive the investment funding
from the investors

282
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And they are Shark, as investors

283
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Also, this research analyzed

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87 episodes of Dragon's Den

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Have you heard about the Dragon's Den?

286
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Dragon's Den is a very similar
business reality show

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aired by BBC in 2006

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with a very similar format to the Shark Tank

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So, anyway, the researchers found out that

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pitches with the deep
and the factual support

291
00:16:01.299 --> 00:16:05.599
can increase the funding success by 20%

292
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In other words,

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if we prepare very well about your pitch

294
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Such as, if you have a
great knowledge about your market

295
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and if you have numbers
and industry insight,

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then, investors feel that you are prepared

297
00:16:25.599 --> 00:16:31.599
Then your funding success

298
00:16:31.599 --> 00:16:33.749
will be increased by how much?

299
00:16:33.949 --> 00:16:37.149
20%, which is a great number

300
00:16:37.599 --> 00:16:40.049
So, the key to success of your funding

301
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is about your preparedness

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So, when you pitch
your business idea to your investors,

303
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you should be prepared very well

304
00:16:51.199 --> 00:16:52.199
Why?

305
00:16:52.199 --> 00:16:56.599
Because your preparedness increases
your funding success by 20%

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Remember the number

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This is very insightful

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Let's move on to another interesting topic

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Which is, the game-changing vision

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You might exaggerate on your vision

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in front of the investors

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When you pitch your business idea,

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you might say that

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I want to be a game-changer in this market

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I want to change the entire old market

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That could be kind of visionary

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But that could be dangerous

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for the investors' point of view

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This professor analyzed
918 Israeli startups

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in terms of their game-changing vision

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Whether the startups
have game-changing vision or not,

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and how big it is, something like that

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00:18:00.749 --> 00:18:04.349
So, the results show us that

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if you have game-changing vision,

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and if you display

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your game-changing vision
to your investors,

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then your likelihood of the funding

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00:18:16.099 --> 00:18:17.849
will be increased how much?

329
00:18:17.849 --> 00:18:19.299
22%

330
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It's really great

331
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If you emphasize on your
game-changing vision too much,

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00:18:25.599 --> 00:18:26.899
then what happens?

333
00:18:27.449 --> 00:18:30.849
Your funding success
will be increased by 22%

334
00:18:30.849 --> 00:18:33.599
It's really great finding

335
00:18:34.249 --> 00:18:36.749
But more interesting thing is

336
00:18:37.649 --> 00:18:40.049
investors are very smart,

337
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and they want to avoid
a dangerous situation

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00:18:44.599 --> 00:18:47.599
So, although they are more likely

339
00:18:47.599 --> 00:18:51.599
to invest their money into the startup
with game-changing vision,

340
00:18:52.599 --> 00:18:56.349
investors reduce 
the total amount of the investment

341
00:18:57.299 --> 00:18:59.949
How much?
By 24%

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00:19:00.249 --> 00:19:03.249
So, to summarize this research,

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00:19:03.599 --> 00:19:06.149
if you display
your game-changing vision

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00:19:06.149 --> 00:19:07.249
to your investors,

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00:19:07.249 --> 00:19:10.399
your funding success chance

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00:19:10.899 --> 00:19:12.599
will be increased 22%,

347
00:19:12.799 --> 00:19:17.599
But your total amount of
the investment from your investors

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00:19:17.599 --> 00:19:19.349
decreased 24%

349
00:19:19.349 --> 00:19:21.099
which is very interesting

350
00:19:21.599 --> 00:19:24.149
So, dream big, more chance

351
00:19:24.599 --> 00:19:27.249
although you will receive less money

352
00:19:28.399 --> 00:19:29.499
So, you can choose

353
00:19:29.499 --> 00:19:31.599
You can choose either one

354
00:19:31.599 --> 00:19:32.999
If I were you,

355
00:19:32.999 --> 00:19:35.399
I will show my game-changing vision,

356
00:19:35.399 --> 00:19:39.599
and I want to increase
the funding success rate by 22%

357
00:19:41.299 --> 00:19:42.299
Let's move on

358
00:19:42.299 --> 00:19:43.449
Passion

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00:19:44.049 --> 00:19:45.599
Passion

360
00:19:45.599 --> 00:19:49.099
Passion is kind of an innate emotion

361
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Innate emotion

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It looks like a fire in my mind

363
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I'm really passionate about
this service or this product

364
00:19:58.299 --> 00:20:02.849
The professors conducted fMRI study

365
00:20:03.249 --> 00:20:04.799
Have you heard about fMRI?

366
00:20:04.799 --> 00:20:07.199
fMRI is a medical machine,

367
00:20:08.949 --> 00:20:11.649
The medical doctors put the patient

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00:20:12.749 --> 00:20:15.449
into the MRI machine,

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00:20:15.449 --> 00:20:19.499
and they take a picture of your brain

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00:20:20.299 --> 00:20:21.949
So, from the MRI,

371
00:20:21.949 --> 00:20:24.349
we can see the inner brain activities

372
00:20:24.949 --> 00:20:28.149
So, we will use these MRI devices

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00:20:28.149 --> 00:20:32.249
to conduct the research about

374
00:20:34.749 --> 00:20:37.399
your thinking and your brain activities

375
00:20:39.599 --> 00:20:41.149
So, basically,

376
00:20:43.049 --> 00:20:47.199
the researchers manipulated
some kind of a video for the experiment

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00:20:47.599 --> 00:20:52.799
Then they recruited 15 investors

378
00:20:53.199 --> 00:20:56.799
And then, they put these 15 investors

379
00:20:56.799 --> 00:20:59.049
into the MRI machine

380
00:20:59.249 --> 00:21:01.599
Inside the MRI machine,

381
00:21:01.599 --> 00:21:03.899
the investors look at the video

382
00:21:03.899 --> 00:21:06.599
Already manipulated video

383
00:21:06.599 --> 00:21:09.799
Inside the video, there is an entrepreneur

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00:21:09.799 --> 00:21:11.599
and the startup founders

385
00:21:11.899 --> 00:21:14.949
They pitch their idea to the investors

386
00:21:14.949 --> 00:21:18.349
inside the video,
inside the MRI devices

387
00:21:18.349 --> 00:21:20.649
And then, the investors

388
00:21:20.649 --> 00:21:24.599
just watch this video inside the MRI

389
00:21:25.399 --> 00:21:29.599
Then the researchers analyze

390
00:21:29.599 --> 00:21:32.549
the brain activities of the investors

391
00:21:32.949 --> 00:21:35.249
inside the MRI devices

392
00:21:35.999 --> 00:21:37.349
What about the result?

393
00:21:37.349 --> 00:21:38.999
The result was shocking

394
00:21:40.599 --> 00:21:42.999
If the founders in the video

395
00:21:42.999 --> 00:21:47.199
displayed great passion
about their business idea,

396
00:21:47.199 --> 00:21:54.499
then investors' brain activities
significantly changed

397
00:21:54.799 --> 00:21:55.599
How?

398
00:21:55.599 --> 00:22:01.599
Investors' neural engagement
increased by 40%

399
00:22:02.249 --> 00:22:03.349
What do you mean by that?

400
00:22:03.799 --> 00:22:08.599
If the startup founders
showed their passion a lot,

401
00:22:08.599 --> 00:22:12.899
then the investors' brain

402
00:22:13.699 --> 00:22:18.849
activated by 40%

403
00:22:20.799 --> 00:22:26.599
The investors became interested
in this business by 40%,

404
00:22:26.599 --> 00:22:28.049
which is great

405
00:22:28.949 --> 00:22:32.599
If founders display high passion,

406
00:22:32.599 --> 00:22:38.949
then investors' interest
to this business is by 26%,

407
00:22:38.949 --> 00:22:39.899
which is great

408
00:22:40.949 --> 00:22:42.949
So, I will show you the picture

409
00:22:43.049 --> 00:22:45.899
Inside the MRI devices,

410
00:22:46.349 --> 00:22:51.849
if the investors feel that
this founder displayed high passion,

411
00:22:51.849 --> 00:22:54.599
then their brain changed like this

412
00:22:54.799 --> 00:22:57.149
And then, their intention,

413
00:22:57.149 --> 00:22:59.699
their interest to this startup

414
00:22:59.699 --> 00:23:03.099
increased by around 24%

415
00:23:04.649 --> 00:23:07.249
I'm sorry, 26%,

416
00:23:07.449 --> 00:23:10.899
which is really interesting research

417
00:23:13.599 --> 00:23:16.799
This is the last but not least research

418
00:23:16.799 --> 00:23:18.999
about the investors

419
00:23:19.399 --> 00:23:25.599
The professors analyzed
1,726 Kickstarter campaigns

420
00:23:25.899 --> 00:23:28.049
The results showed that

421
00:23:28.599 --> 00:23:34.249
If the investors find out
any positive language

422
00:23:34.249 --> 00:23:37.599
from this Kickstarter campaign,

423
00:23:39.249 --> 00:23:42.699
Then the startup's funding success rate

424
00:23:42.699 --> 00:23:45.599
will be increased by 3%

425
00:23:45.599 --> 00:23:49.599
Also startups can increase

426
00:23:49.599 --> 00:23:53.299
their amount of funding by 3%

427
00:23:55.399 --> 00:23:57.599
Success rate increased by 3%

428
00:23:57.599 --> 00:24:01.899
Amount of investment increased by 3.4%

429
00:24:02.499 --> 00:24:04.899
which is a really interesting result

430
00:24:05.049 --> 00:24:06.099
What do you think?