Two cents mean a milestone for startups

While financial support is crucial, it is even more important for startups to listen and learn from every journey

By Pan Jingyi, Principal Writer, China Business Knowledge @ CUHK

Every startup founder believes that their innovative product will transform the industry. “Dream big or go home,” they may say, holding on to hope to secure funding for their venture from eager investors. Along their journey, securing much-needed financial resources can be daunting, especially when it meets with scepticism and criticism.

While it is commonly believed that entrepreneurs should follow the advice of investors, the reality is far more nuanced. Recent research reveals that many entrepreneurs often do not act on the feedback they receive. “Some entrepreneurs doubt investors’ understanding of their business plans, while others are simply overconfident,” says Willow Wu, Assistant Professor at the Department of Management at the Chinese University of Hong Kong (CUHK) Business School.

“By emphasising the role of learning, our research underscores the value of adaptability and continuous improvement in entrepreneurial ventures.”

Professor Willow Wu

“Rather than going against the investors’ advice, they often simply ignore it and make no effort to incorporate the suggestions into their business plans,” she adds. “Still, securing financial resources is essential for early-stage ventures as it enables them to seize opportunities and achieve growth.”

While existing research has studied the factors leading to successful fundraising, such as entrepreneurs’ backgrounds, skills, and networks, how entrepreneurs learn and adjust during this process remains underexplored. To bridge this gap, Professor Wu conducted a study titled Adaptive entrepreneurial learning through platform-mediated resource mobilisation: Insights from early-stage venture financing in China, in collaboration with Wang Song of Zhejiang University and Charles Eesley of Stanford University.

“By emphasising the role of learning, our research underscores the value of adaptability and continuous improvement in entrepreneurial ventures,” says Professor Wu, encouraging entrepreneurs to take advantage of all possible opportunities to learn.

Why are some entrepreneurs so stubborn?

Entrepreneurial learning involves absorbing new information that alters entrepreneurs’ cognition and behaviours. Investor feedback plays a key role in this process by helping entrepreneurs identify challenges and explore alternative strategies. “The iterative process of business plan revision reflects how entrepreneurs transform this feedback into explicit improvements in their business propositions,” Professor Wu adds.

Does listening to investors matter? The data of her research suggests it does. Entrepreneurs who update business plans based on investor feedback, especially those with limited experience, are more likely to secure funding.

The team analysed data from an online platform in China that connects early-stage entrepreneurs with professional investors. The final dataset included 8,773 entrepreneurial projects from January 2015 to March 2018, documenting business plans, investor feedback, and subsequent revisions.

Their findings revealed that the learning effect is particularly pronounced among entrepreneurs lacking a bachelor’s degree. “Entrepreneurs with lower levels of formal education may have more to gain from investor feedback, as they are more likely to approach these interactions with an open mindset, eager to learn and adapt their strategies based on the insights provided,” Professor Wu explains.

On the other hand, highly educated entrepreneurs may feel more confident in their existing knowledge, which can lead them to incorporate less feedback into their revisions.

Tips for effective business plan revisions

While previous studies suggested entrepreneurs acquire financial resources by building relationships during important events, the current research argues that learning during fundraising, such as the revisions of business plans, helps entrepreneurs move from a less-than-ideal situation to a better future.

During the data analysis, the team observed both substantial and symbolic revisions of business plans. “Substantial revisions involve significant changes to the business plan, while symbolic revisions are minor adjustments made primarily to demonstrate a willingness to adapt,” Professor Wu adds. The findings hint that even symbolic revisions may be sufficient to show responsiveness when engaging with the same investor.

Given that investors assess business plans from various perspectives, the ability to adjust and improve presentations based on a range of feedback is essential. The researchers found that making revisions to specific areas of business plans, such as market analysis, financial projections, and product development, is more likely to lead to investment success.

“For example, suggestions for improving specific product features are grounded in measurable criteria,” Professor Wu explains. “The revision of such specific areas is based on more concrete evaluations and tends to be more objective. In contrast, areas like vision or team composition are more subjective.”

Leveraging digital platforms

In today’s tech-driven world, digital platforms can enhance entrepreneurs’ learning process and adaptability. Such platforms offer distinctive environments where entrepreneurs can participate in iterative learning processes, adjust their strategies based on real-time feedback, and mobilise resources more effectively.

“The use of online platforms for fundraising allows entrepreneurs to engage with a broader pool of investors, thereby maximising the potential for feedback and subsequent refinement of business plans,” Professor Wu says, adding that exposure to diverse networks and feedback contributes to both immediate and long-term success for ventures.

For grassroots entrepreneurs with fewer opportunities to interact with investors directly, digital platforms are especially critical. However, Professor Wu notes that these platforms often face challenges in matching the right investors with the right projects.

“The platform could improve its functionality to help entrepreneurs better match with investors based on specific criteria, such as their domain, city, or even more content-based factors,” she suggests.

Be humble and open

By identifying learning as a key driver of successful fundraising, this study offers actionable insights for entrepreneurs.

Some research suggests that entrepreneurs, including those with advanced education, may at times overestimate their capabilities. “Being humbler and more open to suggestions can significantly increase the likelihood of successful fundraising,” Professor Wu says, adding that alumni networks for these entrepreneurs can also serve as valuable resources of advice and mentorship.

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Nevertheless, the principle of continuous learning during the fundraising process applies to all entrepreneurs, regardless of their educational backgrounds. Professor Wu encourages entrepreneurs to remain open-minded, engage with more investors, and view even critical feedback as an opportunity to grow.

“Beyond simply seeking capital, entrepreneurs should actively pursue and internalise feedback from their interactions with investors, recognising that even unsuccessful funding attempts can yield valuable learning opportunities that enhance future success,” she adds.