Cognitive Bias & Investing in Entrepreneurs


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tn (Free Agent) Posted 17 days ago

Everyone has some sort of bias in investing whether that bias is based on culture, race, personality or a million other factors. It's only natural as we are human and we relate differently to other humans. But in investing in Entrepreneurs and Founders, your cognitive bias could be the difference between an investment loss and making a 100X return on your investment.

Some examples of investments that could have made you a 100X return on your investment if it wasn't for your cognitive bias.

Marc Benioff (Salesforce.com) - Even though everyone thought Salesforce.com would be crushed by Oracle. His former boss at Oracle eventually invested in his started. Others passed and asked, who would want to put their information in the cloud?

Jack Ma (Alibaba.com) - Who would want to invest in a former teacher named Crazy Jack Ma? He can't even get into Harvard or get a job at KFC. No one cares about the Internet in China.

Jeff Bezos (Amazon) - Why would I invest in an ecommerce site that sells only books and loses money?

You would probably kick yourself in the butt if you had the opportunity to invest in the early days of these startups. The dumbest reason to not invest in an Entrepreneur is that they don't look or talk like you. The classic example of this is the Venture Capitalist who said, "I only invest in white nerdy males that graduated from Stanford." This is cognitive bias at its worst. There is an old adage that "hindsight is 20/20." You would be a trillionaire if you had this 20/20 hindsight. The real danger in investing is when your emotions get involved in your decision-making. The moral of the story is don't let cognitive bias get in the way of making a 100X investments. BELIEVE in Entrepreneurs and Founders...


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