Distinctiveness from whom? Evaluation of startups' distinctiveness from multiple referents in angel investment platforms

Abstract Research Summary Optimal distinctiveness can enhance firm performance, but we know little about how startups can achieve optimal distinctiveness when faced with multiple referents. This study investigates the strategic positioning of startups relative to two interdependent referents—incumbents and peer startups. Analyzing data for 3266 business plans from an angel investment platform in China, we find that a startup's distinctiveness from incumbents positively influences angel investors' evaluations. However, the positive effect is weakened by the startup's distinctiveness from peer startups within the same platform category. Economic signals emitted by the startup can mitigate the negative interaction between distinctiveness from both referents. Our findings suggest that startups can use a nuanced approach to attain optimal distinctiveness by aligning with peers while differentiating themselves from incumbent firms. Managerial Summary How can startups use their business plans to differentiate themselves from competitors and attract angel investors? Using data from business plans submitted to an angel investment platform in China, we find that a startup's distinctiveness from incumbent competitors helps attract angel investors, but this advantage diminishes when its distinctiveness from peer startups is also high. Nevertheless, startups can alleviate the negative interaction by presenting economic signals, such as financial records. Overall, our study suggests that startups can achieve optimal distinctiveness by aligning with peers while distinguishing themselves from incumbents, with economic signals acting as a legitimacy buffer to enhance their acceptance by investors.