The Internet Civilization and Growing Globalization has been amassing information oceans for decades to everyone’s leverage in real time. The challenge for humanity in the digital age, in any context, is filtering out the noise, chaos, finding needles from haystacks and best capitalize the information asymmetries!
Its so natural for human nature to attempt to connect the dots howsoever inaccurate one can get and how seemingly it can’t actually be connected and eventually dismiss/accept/decide/predict things!
When we take decisions, make predictions based on our inventory of data, groomed information, beliefs, knowledge, world views, biases, examples and connect the dots ourselves we have to be careful and realize the brutal truth that the world can get so random because of the overwhelming dynamics in the ecosystem, human reactions and human behavior being not subjected to rigid laws or patterns and a Butterfly Effect can take the wind in a direction one can ever imagine of!
Which means, as an (angel) investor, when you like a story that has most of the merits you look for and go for it, the reality is that majority of your portfolio won’t give you the blockbuster run, even worse, its likely that some of the portfolio ventures may even struggle for mere existence down the line. We can surely try and hope the lot to include one unusual, Black Swan, giving a quick home run beating all butterfly effects!
Now this is ok, whatsoever, because we rationally and emotionally justified our calls and are content to pick the best apparently – which everyone out there will do. But historical data, probability science, statistics and randomness kind of forces are not good enough to give even a distant assurance. And what about your chances of getting one of those rare Unicorns or Black Swans, as you are one in the crowd hunting them! Shouldn’t you often dig no man’s lands, shouldn’t you do something different to hunt invisible gems or one that has potential to be one, which most are not going after?
What can one do then when the best of us go wrong in analyses, connecting dots and predictions?
Well, the short answer is probably the unlikable or not much helpful “it depends”! It depends on the case at hand.
If you are already doing well and satisfied with your portfolio’s stellar performance collectively and do not wish to invest your time and go against your grain, you can be content and confident with your dismissal of a case that lacks one or more of the ingredients you prefer to be present.
I doubt that would be the case with most investors and their portfolios or even one would want to stop with the accomplishments or gains thus far and would like the idea of dismissing some gems amidst the crowd or pile of pitches; the very few ones that could actually be gems or are already, but might apparently not look so at the first glance.
We probably could often take few minutes out and check the “recycle bin” or the ignored list before permanently* clearing the trash (timing matters for either party)? Or if we have categorized and maintained a ‘see later’, ‘hold’, ‘watch’ list, we should groom that often and sooner than later!
Now whats the criteria to go against the grain and willingly often doubting your instincts, judgement made earlier to make sure your diamond ring did not slip through, with rest of the trashed stuff, at the moment?
Its rare that life is rosy, things are perfect and we will get stories where everything is aligned, adequately composed, especially at idea, pre-traction, pre-seed or simply in early/angel stages.
Classically, investors bet on, in no standard order of weightage:
A. Founder(s), Team
(a ‘B’ category idea/opportunity/market conditions can be made to work by ‘A’ breed team)
B. Idea, Opportunity, Solution, Market
(an ‘A’ category idea/opportunity/market conditions can be made to work by ‘B’ breed team)
(is the most important determinant yet the most unpredictable one because of future dynamics, butterfly effects and what not. We can’t accurately say A/B team would execute better! The very categorization of A/B breeds is itself no science especially for first-time founders)
D. Preparedness, Equipped-ness for events, challenges along the way (knowns, unknowns)
(something that can’t be known/judged in few minutes scan of a background knowing, pitch deck or even a quick discussion – one will need to invest some time to test, learn!)
E. POC, Validation, Traction
(everyone wants to have it and more of it! but does that not make you Common? You got to take exceptions here and go out of the way the extra miles to out stand and find diamonds which rest of your community is missing with this stringent filter!)
If we re-scan the above ingredients, their implications and look deeper and closer, its apparent that no science or wisdom or expert in the world can take a firm ground and defend her decision of approving or rejecting a case with most or some merits!
So what can one do in the quest of finding missed gems, be exceptional often and rise above fear & conventional wisdom?
The answer & the solution probably is simple but implementation could be hard practically but not so difficult if we liberate ourselves and be creative, yes your journey is no less challenging than the entrepreneur’s!
The basic recipe is going back to The Basics and Classics occasionally when you can afford to:
A. Weigh high the characteristic premises an Entrepreneur is qualified upon and should be working with:
Now if this ingredients are present in a case, that are very fundamental and next bettable aspects compared to everyone-desired “Traction”, and as an investor you want to walk the extra miles to make sure you do not miss out some gems which others may at the moment, you should go ahead and be creative in investing the least time (may be bring in a mediator to discover more and pay a charge if deal happens model or leverage a credible connection to help you or you yourself could go out and break the norms often etc.), yet Learn/Listen/Dialogue most with the entrepreneur and do further diligence.
Clearly, this is not a prescription or suggestion for everyone and all the time, Who may try so When, depends on, the particular investor’s philosophy, time, resources, state of things, goals, appetite of going against the grain often and the HUNCH around the case! .
The truth is of course widely acceptable that unless we do things differently or do different things, unless we be creative in our approaches & ways of doing things, be flexible every often and willing to pay an extra opportunity cost (time), we can’t expect different or attractive outcomes!
Finally, allow me to conclude with this thought: Do not be dismissive of things you don’t understand connecting the dots yourself without wearing the other person’s hat and try becoming childish enough to Ask, Learn, “Listen different Stories” how much ever you can.
Do share your thoughts, on how we can make more deals happen, where it should and how can investors do things differently, to reduce their rates of dismissing gems, at a point of ask or be more accurate in their evaluations & judgement, in general.