Doctoral dissertation: Emotions can function as a compass when making decisions on founding companies and on financing them

‘The establishment of new companies requires creativity from both the entrepreneur and the stakeholders supporting his or her business idea, and emotions play a central role in the decision-making related to creating new business activity,’ states Kirsi Snellman in her doctoral dissertation to be publicly examined at Aalto University School of Business on 22 September.

Establishment of new companies, improvement of the financial perspectives for innovation, and enhancement of the creative atmosphere are prerequisites for creation of jobs in the future. However, transforming business opportunities to new enterprises is challenging, because it requires tolerance to uncertainty and navigation towards a future that may be difficult to predict. Typical challenges in the early stages of entrepreneurship include commitment to carrying out the steps required for founding an enterprise under uncertain circumstances, and seeking external funding when there is not yet any strong proof of stakeholder interest in the business.

Snellman's doctoral dissertation provides new information on how emotions can assist both the entrepreneur and investors in making decisions under uncertain circumstances and tackling these practical challenges in the initial phases of entrepreneurship.

‘The negative emotion anticipated by the person considering the possibility of becoming an entrepreneur may promote and accelerate creative activity and the decision to establish a new company. Earlier studies on the subject have been based on the rational approach or they have emphasised the adverse effects of negative emotions on creative processes,’ Kirsi Snellman points out.

The emotions of investors also count

Since creation of companies, creative experiments and growth do not happen without the emotional and financial support from the social environment, the research also sheds light on the emotions associated with the decision-making by the investors.

According to Snellman, only those business ideas that raise interest or evoke other feelings are taken under closer scrutiny. If the business idea does not stir any emotional reactions, it is easier to ignore. The enthusiasm or fear experienced by the investor may complement the rational considerations and affect behaviour when making decisions. Even if rational criteria were met and enthusiasm was aroused, the final decision to grant funding also requires that other investors and experts become enthusiastic about and support the idea. Earlier studies on the subject underscore the rational side of making funding decisions. They focus on the cool-headed, rational arguments, giving less attention to emotions and the opinions of other investors and networks.

‘My research participates in the discussion on the meaning of emotions in strengthening the creative atmosphere by examining the role of emotions in the decision-making situations of key importance for the creation and development of companies: the decisions concerning the establishment of a company and the funding decisions of angel investors. This is valuable information, because emotions inspire people to create something new, and new companies are created and developed as a result of a dialogue between entrepreneurs, investors and social networks,’ says Kirsi Snellman, summing up her observations.