Startup Funding Espresso -- Gambler's fallacy

Gambler's fallacy

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

The gambler’s fallacy is a cognitive bias defined by Wikipedia as the tendency to think that future probabilities are altered by past events when in reality they are unchanged. 

Investors bet on startups that follow what other recent successful startups have done even though the potential of the startup is no better than before.

For example, after a startup proves successful in a sector, investors rush to that sector to fund similar startups.

While the market may be ripe for startup success there are many other factors that come into play to achieve a successful exit.

To overcome the gambler's fallacy, the investor should focus on the data describing the future. 

Past events don’t predict future success.

Each startup is unique and success is driven by many factors.

Investors should be aware of the gambler's fallacy and judge each startup on its merits.

 

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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