Startup Funding Espresso -- IKEA effect

IKEA effect

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

The IKEA effect is a cognitive bias defined by Wikipedia as the tendency for people to place a disproportionately high value on objects that they partially assembled themselves, such as furniture from IKEA, regardless of the quality of the end product.

Investors will have more affinity for a startup if they’ve had a hand in helping build it.

This leads to bad investment decisions as the investor is supporting the work they put into the startup even though the startup doesn’t meet their criteria for funding. 

To overcome the IKEA effect the investor should separate their personal contribution from the investment decision.

Compare the startup to others on each aspect of the business such as team, traction, and market.

Review the data to see what it says about the startup.

Seek out independent analysis and perspective about the startup.

Check to see how it compares against your investment thesis and criteria.

The IKEA effect is subtle and can distort one’s perceptions.

 

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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