Whether previously as an institutional financier or investing on behalf of Pique Fund in early-stage ventures, I have a robust due diligence process and gather as much information as reasonably possible before making a decision about investing in a management team and the company they lead.
In my answer on Quora to What is an example of a good investment memo used by seed startup investors such as VCs?, I shared the components that go into an investment memo for Pique Fund.
But there are three key things I look for and different types of information that inform my investment decision.
- How a CEO makes decisions in the face of uncertainty. Building a business is a series of decisions, one after the other and often at the same time. Not only in early-stage businesses, but mature ones as well, there is uncertainty. The critical difference-maker in business is how leaders make decisions, particularly in the face of uncertainty and where they must take risks. In my opinion, risk averse CEOs are themselves a risk to a business. They’ll play it safe and never take those big leaps which lead to breakthroughs, innovation, and growth. Reducing risk and managing risk wisely is one thing, but being defensive about risk is stifling.
- Trustworthiness. One of the most important questions I’m trying to answer as an investor is, “Can I trust you with this money?”
- Do I enjoy working with you. This includes everything from whether I like spending time with you, am I excited to champion you, your vision, and your venture, am I aligned with your mission and the positive impact you want to have on the world, am I proud to be associated with you. Life is short and I want to spend it with people I like and am excited about. My investments aren’t just investments of capital, they are investments of time, energy, and resources. I want to invest in people and companies that energize me and lift me up.
I’m an advocate of integrating analysis, emotion, body, and intuition into investment decisions, as I wrote about in my book, Integrated Investing. To make a decision about investing in someone and their company, I gather information that I can analyze, but I also pay attention to my emotions, how I feel physically, and what my intuition tells me.
For more information about how emotions drive our decisions, explore Antonio Damasio’s research on patients that had damage to the part of the brain that affects emotions.
I am presently reading The Intuitive Investor by Jason Apollo Voss, CFA. He writes very articulately and clearly about the distinction between emotions and feelings. We talk about entrepreneurial intuition in decision-making, but I sometimes find intuition to be an elusive thing to describe, especially in investing. Voss does a great job of elucidating the role and limitations of analysis, how there is no such thing as a future fact (and therefore, how can we analyze something that hasn’t happened yet), and how to harness right-brained, creative, intuitive information to optimize our decision-making.
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This post was originally published on Quora. Ask me anything on Quora.
For more impact investing resources and tools, check out Integrated Investing: Impact Investing with Head, Heart, Body, and Soul, available at all major online book retailers.
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