The Role of Gut Feeling in VC Decision Making — Fomo, Yolo and Analysis Paralysis
*Originally published on VC Cafe
In the past few days, I’ve been finding it hard to make an important decision. I’ve been reviewing a number of investment opportunities for us at Remagine Ventures that were super interesting, but not a straight yes/no answer. In the process of learning about the the startups in depth (the team, its market, product, competition, etc) I went through the usual process/checklist, but something, call it a gut feeling, wasn’t sitting right.
I found myself swinging between FOMO and YOLO. On one hand, a quick moving deal forces a decision, and one can’t help but wonder “what if I’m wrong”. On the other hand, venture capital is by definition ‘risk’ capital, an we’re accustomed to make decisions in uncertainty. The deadlock between the two has a real risk of ending in “Analysis Paralysis”. This is of course not unique to me. Many VCs experience the same, and some have written about their process, or the psychology of it.
To get smarter about ‘the right’ answer or at least in an effort to better understand decision making, I started reading. The academic research in the space of decision making is large and growing. For the last five decades (!), researchers have been studying the role of cognition, emotion and intuition in human decision making.
You might be familiar with Daniel Kahneman’s award-winning Thinking Fast and Slow, where he summarises a life-time of cutting-edge research that won him the Nobel prize in economics. One of the distinctions he draws is that of the two systems we use to process information in order to make decisions:
- System 1 (thinking fast) operates automatically and quickly, with little or no effort and no sense of voluntary control.
- System 2 (thinking slow) allocates attention to the effortful mental activities that demand it, including complex computations.
The book then describes in detail the biases and heuristics that affect our decision making, shining a light on human decision making as a result of hundreds or…