Startup Funding Espresso – Confirmation Bias

Confirmation Bias

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

Confirmation bias is a cognitive bias defined by Wikipedia as the tendency to search for, interpret, focus on and remember information in a way that confirms one's preconceptions.

Investors bring their recent investment experiences to fund new startups.

If the investor recently lost their investment in a deal in a certain sector, then the investor will most likely look unfavorably at other deals in that sector.

On the other hand, if the investor found success in investing in a particular type of company, then most likely the investor will look for similar companies.

It’s important to understand these forces when setting up an investment thesis and criteria for funding startups.  

To overcome confirmation bias consider the following:

Try to view the deal from other angles than you traditionally use.

Ask other investors for their views on it and note the ones with strong objections.

Discuss your thought process with other investors to see where you might be off the mark.

Expand your connections to include people with other experiences and viewpoints.

Give prominence in your thinking to views divergent from your own. 

 

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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