How VCs Think (FOMO and FOLS!)
An article we liked from Thought Leader Gigi Levy-Weiss of NFX:
Beyond their incentives and constraints, the other thing you need to understand to successfully negotiate VCs is their personal inner psychology.
Now that you understand the incentive model, you must learn the psychology this incentive model creates.
Certainly, the VC’s individual desire to solve certain big problems in the world — or a moral code driving them to do good at scale — will influence the companies they gravitate toward or not. But from a business perspective, let’s look at how the financial model causes them to think and feel.
FOMO & FOLS Are Very Real
We’ve written about this before in our essay on the two big psychological drivers for investors. Essentially, the investor’s two biggest psychological drivers are:
- FOMO (Fear of Missing Out) – Investors are constantly afraid of passing on a company that goes on to be a hit, or failing to get in a deal that their competitors got into. This is a big psychological motivation, both for financial reasons (it’s a hit-driven business model so if you miss the big hit, you lose your chance of outsized returns) but also since VC is so competitive. Imagine an investor who saw Facebook or Tesla early on and passed on investing.
- FOLS (Fear of Looking Stupid) – Investors don’t want to look stupid by making an investment in a company that other investors think is an obvious pass. This makes it especially difficult for un-established or less-established VCs to invest in risky companies or in sectors that aren’t very hot because...
Read the rest of this article at nfx.com...
Thanks for this article excerpt to Gigi Levy-Weiss, General Partner at NFX.
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