Wed, 25 January 2023
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
The availability cascade is a cognitive bias defined by Wikipedia as a self-reinforcing cycle that explains the development of certain kinds of collective beliefs.
Investors who repeat a belief among themselves will reinforce that belief even if it’s not true.
One investor will state his recollection as a fact to a group of investors.
Another investor repeats the statement as a fact.
As this continues around the group the initial recollected memory becomes a fact that every investor believes.
To overcome the availability cascade presume nothing is true until proven.
For example, if the startup doesn’t state revenue numbers, then assume they have no revenue.
In the diligence process write out the assumptions you have and then test each one by going through the dataroom to verify or debunk the assumptions.
This applies to the team, the product, the revenue, and the fundraising details in particular.
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