I recently saw a post on LinkedIn seeking suggestions for removing bias from investment due diligence process. In particular, the inquirer wanted to ensure that characteristics such as race, gender, and culture did not come into play. They drew from processes from other domains such as auditioning for an orchestra from behind a curtain or the removal of names from resumes. They wondered about some form of blind pitching or generalizing names on investment memos.
I noted that bias in decision-making is natural. Emotions drive decisions and to take emotions out of decision-making entirely, we wouldn’t be able to make decisions. Having a group of people with diverse perspectives evaluate opportunities is one way to counter biases. And I’ve often been curious about applying Textio‘s augmented writing technology to how investment opportunities are communicated.
Removing or somehow neutralizing names in applications doesn’t eliminate all potential differences and clues. How we communicate in written and oral form, the choice of words and phrases, and our tones may differ. Some of those differences might actually be meaningful to our decision-making. It’s not like baseball or musical performance, where after neutralizing the container of delivery, the content conveyed is in a more uniform form. In investment relationships, the content and information being conveyed are still going to be quite varied. Creating some kind of “blind application” doesn’t adequately change the perspective and lens of the person in the evaluating and decision-making role. For decision-makers, we need to change our habits, shift our perspectives, identify our biases and remove them.
I reflected on the challenge some more and have some additional suggestions for how evaluators and decision-makers could shift their mindsets and potentially reduce biases (or at the very least, become more aware of biases and how they could impact a decision):
- Observe or make decisions with people who don’t have the biases you do. This requires radical openness to new ways of seeing and thinking.
- Identify potential biases and visualize or walk-through an experience without those biases. There is a cognitive technique I know of that involves physically shifting the energy associated with a behaviour, visualizing an alternative, and then putting the new behaviour into practice. It is an intense form of visioning that requires practice, repetition, and desire and commitment to change.
- Meditate on alternative views. Once alternatives are identified and practiced, meditation helps embed the new perspectives and helps you steer your mind in the direction you want to take should it stray off into old habits.
- Experience action without your previous biases. There is nothing more convincing than actually experiencing the result and outcomes of a different way of seeing and thinking.
Based on a real-life example, an investor may change his or her mind about investing in a venture after learning the venture’s CEO is pregnant. They may be biased in thinking that the CEO is no longer committed to her venture, that she will somehow let investors down. However, having experienced building a business and launching Pique Fund while pregnant with my first child, as well as actively creating an investment environment where I’m exposed to pregnant founders or CEOs with young families, I don’t have the same bias. In addition to applying Integrated Investing in our due diligence process, I approach the situation differently. I advise and coach the entrepreneurs we fund through Pique Fund and in the broader Pique community, on how to be prepared in your business before and after birth, drawing on advice I received as well as lessons I learned first-hand. This is just one example of how I have a different perspective and perhaps am biased towards supporting and helping entrepreneurs through the transition. I view pregnancy and family issues as similar to other uncertainties in the path of business building that entrepreneurs can learn to navigate with the right tools, processes, and support.
I’m sure there are other methods and approaches that other investors and decision-makers use. My suggestions above are based on my experience and haven’t been tested in a more scientific way, but hopefully, it provides some direction and sparks further thought… and new perspectives.
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