The Expectations Game
The Contingent Value of Hype as a Rhetorical Strategy in Resource Mobilization Processes among AI Startups
Key Finding
There is an inverted U-shaped relationship between hype and resource mobilization: investor valuations increase with hype up to a critical threshold, beyond which further hype diminishes outcomes. But factors enhancing credibility and comprehensibility shift this threshold — the same message that sounds delusional from one startup sounds visionary from another.
Overview
Technology startups confront a critical dilemma when attempting to use hype to mobilize resources under conditions of extreme uncertainty. While some scholars argue that high levels of hype are essential for securing resources, others caution that excessive hype triggers investor skepticism. This paper resolves the tension by analyzing 302 AI startups across 880 financing rounds using a combination of established econometric methods and emerging machine learning techniques. The findings reveal an inverted U-shaped relationship between hype and resource mobilization — investor valuations increase with hype up to a critical threshold, beyond which further hype diminishes valuation outcomes. Crucially, factors that enhance a startup's comprehensibility and credibility shift this threshold, allowing some ventures to sustain higher levels of promotional intensity without penalty.
Contribution to the Research Program
This paper sits at the intersection of the Resource Mobilization and AI & Deep Tech Entrepreneurship streams. It demonstrates that the challenge of building an AI venture is not purely technical but deeply rhetorical — entrepreneurs must navigate a landscape where expectations about AI capabilities are simultaneously inflated and uncertain. Within the Cyborg Entrepreneurship framework, the paper illuminates how the boundary between legitimate vision and strategic manipulation becomes blurred when the underlying technology is itself difficult to evaluate. It connects to the lab's broader interest in epistemic challenges: just as entrepreneurs struggle to evaluate AI outputs (per "Algorithmic Hallucinations"), investors struggle to evaluate AI-based venture claims.
Key Insights
- An inverted U-shaped relationship exists between hype and resource mobilization — moderate hype maximizes investor valuations
- The optimal level of hype is not fixed but contingent on factors that enhance comprehensibility and credibility
- Startups with strong credentials, revenue growth, and favorable market timing can sustain bolder claims without penalty
- AI startups face unique rhetorical challenges because the technology itself resists easy evaluation by non-technical stakeholders
- The study combines traditional econometric methods with machine learning techniques, bridging methodological traditions