Thu, 16 February 2023
Loss Aversion Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. Loss aversion is a cognitive bias defined by Wikipedia as the disutility of giving up an object is greater than the utility associated with acquiring it. Investors will continue to hold a position in losing startups because of hating to lose and clinging hopefully to a potential turnaround. To overcome loss aversion startup investors should consider these points: When making an investment consider the funds lost from day one. Any returns will be a pleasant upside. Consider the fundamentals of the business and not just the current status. Treat the investment as a financial transaction and not a personal win or loss. Diversify your investments so one loss is relatively small. Keep in mind the overall position of investments rather than each specific deal. Develop a plan for each investment including follow on funding, early exit options, and tax write-offs if it all goes to zero.
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