Venture capital investing is a complex dance of intuition, data analysis, and timing. It’s an art that requires a deep understanding of human psychology, business acumen, and a knack for spotting potential where others might not. I’ve been passionately exploring the dilemmas that come with investing in people, the significance of timing, the importance of numbers, founders’ backgrounds, luck, and many other factors from the business an psychology perspective.
One of the most profound dilemmas in venture capital investing is the decision to invest in people when there is just a blurry idea in their heads. As Ilya Strebulaev notes in “The Venture Mindset: How to Make Smarter Bets and Achieve Extraordinary Growth,” “Investing in people is not just about providing capital; it’s about believing in their potential and helping them realize it.” This involves assessing the founders’ character, resilience, and ability to execute their vision. However, this assessment is fraught with psychological challenges. VCs must navigate between their own biases and the need for objective evaluation. The “halo effect” can lead investors to overvalue charismatic founders, while the “similarity-attraction effect” might cause them to favor founders who remind them of themselves. How can you possibly find the ‘magic number’…