Startup Funding Espresso -- Ambiguity Effect

Ambiguity Effect

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

The ambiguity effect is a bias defined by Wikipedia as the tendency to avoid options for which the probability of a favorable outcome is unknown.

Startups are risky and make proposals about the outcome of their deal. 

Investors avoid engaging with startups when they do not have confidence in the proposed outcome.

Startups should make clear what is currently known about the business and the potential prospects of the deal.

By clarifying the risks associated with the deal the startup makes it easier for investors to evaluate it.

For each risk in the deal, the startup should identify it and make clear how they will mitigate it. 

If there are too many risks and they are not clearly articulated then investors will not engage with the deal.

Missing information often leads investors to the ambiguity effect. 

Startups should cover all the basic elements of the business including the team, the market, the business model, and current traction. 

Startups pitching their deal must convince the investor that the proposed outcome is certain to happen. 

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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