Discussion Topics

Fundraise Differences by Stage In raising funding over the life of the startup you’ll find there are differences in the fundraise at each stage. The goal at the Seed stage is to show you can sell the product. At this stage, the investors will look primarily at the team since there’s little in the way […]

Von Restorff Effect The Von Restorff effect is defined by Wikipedia as an item that sticks out and is more likely to be remembered than other items. The startup pitch that provides something unique will be remembered more than the others. To use the Von Restorff effect in your pitch consider the following: Highlight key […]

What Type of Funding Should You Seek When raising funding consider the type of funding you should pursue. There are many types of funding such as equity funding including angels and venture capitalists. There are debt funding tools including loans and revenue-based funding. There are crowdfunding portals including rewards, equity, and peer-to-peer lending. Before choosing […]

Zeigarnik Effect The Zeigarnik effect is defined by Wikipedia as uncompleted or interrupted tasks that are remembered better than completed ones. Investors will remember the pitch that leaves them hanging more easily than those with closure. The cliffhanger in a serialized show is remembered because the action is left unfinished. It leaves the viewer with […]

Verbatim Effect The Verbatim effect is defined by Wikipedia as the “gist” of what someone has said that is better remembered than the verbatim wording. Catchphrases and taglines will help investors remember your startup and what it does. Investors remember the essential meaning rather than the specific words you say in a pitch. They will […]

Should You Raise Funding for Your Startup Before raising funding consider if you should raise funding for your startup. Ask why you need funding and see if you have a specific need for funding tied to growing the business.  If you have a business on a high growth trajectory, consider venture funding.  If the business […]

Testing Effect The testing effect is defined by Wikipedia as the fact that you more easily remember information you have read by rewriting it instead of rereading it. Investors remember what they recall from memory better than just hearing the pitch again. This comes from research showing that taking a test that requires one to […]

Spacing Effect The spacing effect is defined by Wikipedia as information is better recalled if exposure to it is repeated over a long span of time rather than a short one. A series of updates is more effective in communicating your startup story as the investor will remember more than if the story were given […]

Humor Effect The humor effect is defined by Wikipedia as humorous items that are more easily remembered than non-humorous ones, which might be explained by the distinctiveness of humor, the increased cognitive processing time to understand the humor or the emotional arousal caused by the humor. Startup pitches with humor are more memorable than those […]

Context Effect Context effect is defined by Wikipedia as cognition and memory are dependent on context, such that out-of-context memories are more difficult to retrieve than in-context memories Investors need context in order to understand the startup offering such as the problem to be solved. In pitching founders include basic concepts in the presentation. The […]

Bizarreness Effect The bizarreness effect is defined by Wikipedia as bizarre material that is better remembered than common material. Presentations that use bizarre information are more easily remembered than conventional ones. Founders can capture and maintain the interest of investors by using unusual wording or language. This works when the unusual phrase or sentence is […]

False Consensus Effect The false consensus effect is defined by Wikipedia as the tendency for people to overestimate the degree to which other people agree with them. Founders sometimes overestimate how others may share their beliefs. They often mistake silence for consent in talking with investors. Investors often nod in acknowledgment of what the founder […]

Naive Realism Naive realism is defined by Wikipedia as the belief that we see reality as it really is – objectively and without bias; that the facts are plain for all to see; that rational person will agree with us; and that those who don’t are either uninformed, lazy, irrational, or biased. Founders believe their […]

Illusory Superiority Illusory superiority is defined by Wikipedia as overestimating one’s desirable qualities and underestimating undesirable qualities, relative to other people. Every founder considers themselves superior and should be funded accordingly. This is a flawed view of the startup world in which investors can see many startups while the founder sees far fewer. In fundraising, […]

Illusion of External Agency Illusion of external agency is defined by Wikipedia as when people view self-generated preferences as instead being caused by insightful, effective, and benevolent agents. Founders often believe someone else can make their fundraiser successful. The responsibility of fundraising for startups lies solely on the founder’s shoulders. While others may help through […]

Group Attribution Error Group attribution error is defined by Wikipedia as the biased belief that the characteristics of an individual group member are reflective of the group as a whole. Startups often project the characteristics of one investor on the entire group when the group is much more diverse. Angel groups for example are composed […]

Zero-Risk Bias Zero-risk bias is defined by Wikipedia as the preference for reducing a small risk to zero over a greater reduction in a larger risk. Customers will choose a product that eliminates risk over another product that has a greater price reduction. For example, you could offer two products that are similar. The first […]

Survivorship Bias Survivorship bias is defined by Wikipedia as concentrating on the people or things that “survived” some process and inadvertently overlooking those that didn’t because of their lack of visibility. Incubators often measure their results based on startups that get funded rather than all the ones who go through the program. Taking out the […]

Subjective Validation Subjective validation is defined by Wikipedia as the perception that something is true if a subject’s belief demands it to be true.  In developing products founders look for information that matches their own view of the problem and solution. Founders build their products for a market based on their own view of the […]

Pseudo-certainty Effect The pseudocertainty effect is defined by Wikipedia as the tendency to make risk-averse choices if the expected outcome is positive, but make risk-seeking choices to avoid negative outcomes. As the startup finds success, the founder becomes more risk-averse because something at stake can be lost. For startups that are flailing, risk-taking becomes the […]

Authority Bias Authority bias is defined by Wikipedia as the tendency to attribute greater accuracy to the opinion of an authority figure and be more influenced by that opinion. Founders seek experts in various roles to help grow their startups. In particular, this occurs when the founder is working in unfamiliar areas. Problems arise if […]

Optimism Bias The optimism bias is defined by Wikipedia as the tendency to be over-optimistic, overestimating favorable and pleasing outcomes  Startup founders often focus solely on the opportunity while ignoring the risks. Skeptical investors do the opposite by focusing on the risks. Startups succumb to the optimism bias because they believe more things are under […]

Ostrich Effect The ostrich effect is defined by Wikipedia as ignoring an obvious negative situation. It’s common among founders to ignore the challenging parts of the startup such as competitive position or weakness of the product, and more. Some founders handle it by not paying attention to it. Others misinterpret the situation as something else […]

Planning Fallacy The planning fallacy is defined by Wikipedia as the tendency to underestimate task completion times. Projects take twice as much time and cost as planned. First-time founders don’t have previous experience and cannot rely upon past projects when making plans. Some founders recall selected cases in the past that went well and plan […]

Pro-Innovation Bias The pro-innovation bias is defined by Wikipedia as the tendency to have an excessive optimism towards an invention or innovation’s usefulness throughout society, while often failing to identify its limitations and weaknesses. Startups overestimate the speed of adoption of new technology. Users are often slow to adopt new technologies due to the cost […]

Projection Bias The projection bias is defined by Wikipedia as the tendency to overestimate how much our future selves share one’s current preferences, thoughts, and values, thus leading to suboptimal choices Founders who hire team members in the early stage come to realize that different skills will be required later in the life of the […]

Omission Bias The omission bias is defined by Wikipedia as the tendency to judge harmful actions (commissions) as worse, or less moral, than equally harmful inactions (omissions). Founders will often omit details rather than give outright lies when pitching their startup to an investor. Ultimately, in due diligence, all the facts will become known. It’s […]

Observer Expectancy Bias The observer expectancy bias is defined by Wikipedia as when a researcher expects a given result and therefore unconsciously manipulates an experiment or misinterprets data in order to find it. Startups will take customer feedback and ignore the elements that don’t match their expectations. This is a problem that many startups face […]

Normalcy Bias The normalcy bias is defined by Wikipedia as the refusal to plan for, or react to, a disaster that has never happened before. First-time startups suffer from the normalcy bias as they have limited experience with what can happen to startups over time. Founders with previous experience tend to prepare better for the […]

Money Illusion The money illusion effect is defined by Wikipedia as the tendency to concentrate on the face value of money rather than its value in terms of purchasing power. In pricing the product, a startup should list their product price in the smallest unit possible such as daily cost rather than annual cost. For […]

Illusory Truth Effect The illusory truth effect is defined by Wikipedia as the tendency to believe that a statement is true if it is easier to process, or if it has been stated multiple times, regardless of its actual veracity.  In a startup pitch, facts repeated several times can increase believability. Repetition reinforces a belief […]

Singularity Effect The singularity effect is defined by Wikipedia as the tendency to behave more compassionately to a single identifiable individual than to any group of nameless ones. People in general feel compelled to help individuals.  In a disaster scenario such as an earthquake, donors will feel numb to the large number of people impacted […]

Reactive Devaluation   Reactive devaluation is defined by Wikipedia as devaluing proposals only because they purportedly originated with an adversary. Founders skip the lessons that can be learned from competitors because they view the competitor as wrong in their approach. This also applies to situations in which the founder discounts advice given from a source that […]

Product Segmentation Product segmentation creates different versions of the product for different users. Novice users may get a version that is simple to use while power users have access to tools that are more complex. One can achieve product segmentation by using a platform approach to the product. A platform approach provides a basic architecture […]

Illusion of Control The illusion of control phenomenon is defined by Wikipedia as the tendency to overestimate one’s degree of influence over other external events. Startups often display an illusion of control about how their product and sales efforts will take over a market. Just as the gambler in the casino cannot make the dice […]

Hindsight Bias The hindsight bias is defined by Wikipedia as the tendency to see past events as being predictable at the time those events happened. When an investor sees a  startup fail or succeed, early indicators come back to the investor’s mind. In some cases, investors selectively remember certain events or facts that later confirm […]

Benefits of a Platform-Based Approach A platform-based approach to your business brings many benefits  Platforms make it easier to use a recurring revenue model.  Investors appreciate the value of this revenue model. It brings predictability to the forecast and makes it somewhat easier to manage the business and raise funding. With three metrics, cost of […]

Applying AI to E-commerce AI brings new capabilities and benefits to e-commerce businesses. AI can enhance e-commerce companies in the following ways: Create better search tools for customers seeking products and services online. Retarget customers for related products. Provide better recommendations to customers for similar products. Enhance the customer shopping experience through voice or chat […]

Applying AI to Current Product AI can be applied to your current products. Here are some benefits of integrating AI with your product line: Add new capabilities to the existing product. This could be a better analysis of the information coming out of the product. Reduce costs. AI capabilities could replace more expensive search algorithms. […]

How To Use Data With AI Data is a key component of Artificial Intelligence systems. AI looks for patterns in the data and draws conclusions from it. The better the quality of the data, the better the output. AI requires a substantial amount of data with which to discover insights. As AI acquires new data […]

The Use of Data and Algorithms in AI Artificial intelligence utilizes data and algorithms to create technical solutions. Data and algorithms could be open or closed giving the business a competitive advantage. Here’s a list of the business models and how open and closed data and algorithms impact the business. The Black Box — both […]

Why Add AI to Your Business AI brings many advantages to your business. Here’s a list of benefits to consider for your company: Automate repetitive tasks such as those found in sales, administration, and customer service. For support, AI can enhance help desk functions by searching the network for potential solutions. Personalize customer support by […]

Types of AI Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. There are many types of Artificial Intelligence. Here’s a list of the types: Narrow AI — focuses on a single task or narrow range of functions. Applications include image recognition, voice recognition, […]

Issues in adding AI In adding AI to your business consider these best practices: Create a list of potential applications and order them by the ease of use and value to the company. Identify a simple use case for the first effort. Check to see if you have the skills necessary to implement the program. […]

Business Benefits of AI AI brings many benefits to a business. Here’s a list of key benefits that can help your business. Improve existing products with new features. AI adds another layer of functionality to current products. Optimize the business. AI points out ways to improve business operations by reducing costs. Reduce costs by optimizing […]

How AI Can Be Used in a Business AI can enhance the operations of a business. Here are some steps to implement AI in your startup: Identify an application where AI can enhance your operations. Define the outcome of the solution and what it should do. Choose an AI tool that is built for the […]

AI Art Generators AI brings new capabilities for generating art. There are many tools now available to create art of all styles, subject matter, and formats. One can even generate a new piece of artwork using the same style as an original work. By using machine language, algorithms, and data structures AI can reconstitute an […]

AI in Gaming AI brings many new capabilities and enhancements to gaming. Here’s a list of how AI improves gaming: Image improvement — AI can enhance the imagery in games by using neural networks to increase the number of pixels in the image. Level generation — AI can create new levels increasing the complexity of […]

AI Applications in Business AI solves many business problems. Here’s a list of AI business applications: AI can create content for marketing campaigns building copy for social media, email, and website pages. It can assist sales in prospect management by searching all past correspondence with the lead. It can augment cybersecurity by tracking vulnerabilities of […]

Generative AI Use Cases Generative AI even in its earliest stage provides meaningful use cases. Here’s a list of use cases it can handle: Creating marketing copy such as product descriptions and social media content. Assisting in sales work such as screening prospects and completing sales contracts. Code generation for software applications including code verification. […]

Generative AI Artificial intelligence has been around for over fifty years. Through the use of large language models and machine learning tools, it is possible to mimic human output. Generative AI is artificial intelligence that uses algorithms to generate text, data, or images, that is new information. Generative AI models are trained with enormous amounts […]

Curse of Knowledge The Curse of knowledge is defined by Wikipedia as when better-informed people find it extremely difficult to think about problems from the perspective of lesser-informed people. Startup founders are often experts in their field and find it difficult to discuss with investors who are not experts. They are so close to the […]

Default Effect The Default effect is defined by Wikipedia as when given a choice between several options, the tendency to favor the default one. It’s also called the Status Quo bias in which people choose the default option because it’s less risky. Startups should position their deal as the default so that in case of […]

Expectation Bias The expectation bias is defined by Wikipedia as the tendency for experimenters to believe, certify, and publish data that agree with their expectations for the outcome of an experiment, and to disbelieve, discard, or downgrade the corresponding weightings for data that appear to conflict with those expectations. Startups select market and customer data […]

Fading Affect Bias The fading affect bias is defined by Wikipedia as a bias in which the emotion associated with unpleasant memories fades more quickly than the emotion associated with positive events. Startups encounter both hard times and good times.   People forget the hard times but remember the positive moments. The harder the times, the […]

Framing Effect Bias Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. The framing effect bias is defined by Wikipedia as drawing different conclusions from the same information, depending on how that information is presented. How you frame the startup in a pitch can […]

Ambiguity Effect The ambiguity effect is a bias defined by Wikipedia as the tendency to avoid options for which the probability of a favorable outcome is unknown. Startups are risky and make proposals about the outcome of their deal.  Investors avoid engaging with startups when they do not have confidence in the proposed outcome. Startups […]

Attribute Substitution The attribute substitution is a bias defined by Wikipedia that occurs when an individual has to make a judgment that is computationally complex and instead substitutes a more easily calculated heuristic attribute. Startups presenting a complex concept such as how their technology works should replace it with a heuristic or analogy that is […]

Backfire Effect The backfire effect is a bias defined by Wikipedia as the reaction to disconfirming evidence by strengthening one’s previous beliefs. Investors can reject a startup’s pitch if they doubt the premise even if confronted with the facts.  Providing more facts will only make the investor dig in further.  To overcome the backfire effect, […]

Belief Bias The belief bias is a bias defined by Wikipedia as an effect where someone’s evaluation of the logical strength of an argument is biased by the believability of the conclusion Similar to the confirmation bias, investors bring their experience to the startup pitch and make judgments on the proposed pitch while underway. Investors […]

Ben Franklin Effect The Ben Franklin effect is defined by Wikipedia as a person who has performed a favor for someone is more likely to do another favor for that person than they would be if they had received a favor from that person. This effect comes from a statement by Ben Franklin: “He that […]

Shared Information Bias The shared information bias is a cognitive bias defined by Wikipedia as the tendency for group members to spend more time and energy discussing information that all members are already familiar with and less time and energy discussing information that only some members are aware of. Investors focus on information their investor […]

Picture Superiority Effect The picture superiority effect is a phenomenon defined by Wikipedia whereby the notion that concepts that are learned by viewing pictures are more easily and frequently recalled than are concepts that are learned by viewing their written word form counterparts. Investors identify and remember more from images than words. Startups should use […]

Modality Effect The modality effect is a phenomenon defined by Wikipedia whereby memory recall is higher for the last items of a list when the list items were received via speech than when they were received through writing. In a startup pitch, the last slides are the ones that the investors will remember most. These […]

Levels of Processing Effect The level of processing effect is a phenomenon defined by Wikipedia whereby different methods of encoding information into memory have different levels of effectiveness. Different forms of communication and listener processing will affect the investor’s ability to remember. Shallow learning results in short-term knowledge retention. Deep learning results in long-term knowledge […]

Lag Effect The lag effect is a phenomenon defined by Wikipedia whereby learning is greater when studying is spread out over time, as opposed to studying the same amount of time in a single session.  Investors learn more about the startup if the information is spread out over time. It helps to understand the startup […]

Semmelweis Reflex Semmelweis reflex is a cognitive bias defined by Wikipedia as the tendency to reject new evidence that contradicts a paradigm. Some investors reject startups if it goes against conventional wisdom. In the startup world, there are always new technologies, markets, and business models to support them.   It takes some effort to learn about […]

Stereotyping Stereotyping is a cognitive bias defined by Wikipedia as expecting a member of a group to have certain characteristics without having actual information about that individual. Investors can stereotype startups based on their previous experience. This can be a bias against a sector of business, a leadership style, or another. To overcome stereotyping, investors […]

Halo Effect The halo effect is a cognitive bias defined by Wikipedia as the tendency for a person’s positive or negative traits to “spill over” from one personality area to another in others’ perceptions of them.  Investors often presume those who are good at pitching and are passionate are also good at running the business.  […]

Ingroup Bias The Ingroup bias is a cognitive bias defined by Wikipedia as the tendency for people to give preferential treatment to others they perceive to be members of their own groups. Investors give preference to those in their network over those outside their network. This can be a challenge as startup investing is often […]

Self-Serving Bias The self-serving bias is a cognitive bias defined by Wikipedia as the tendency to claim more responsibility for successes than failures. Investors use successful investments as proxies for their skill but attribute the failures to other causes. Investors are naturally optimistic. When things go wrong it’s easy to blame external factors. To overcome […]

Selective Perception Selective perception is a cognitive bias defined by Wikipedia as the tendency for expectations to affect perception. Investors tend to see what they want to see in a startup deal. Investors choose those elements in the pitch that match their experience and expectations. Selective perception comes from previous experiences with startups both good […]

Present Bias Present bias is a cognitive bias defined by Wikipedia as the tendency of people to give stronger weight to payoffs that are closer to the present time when considering trade-offs between two future moments Early exits weigh stronger on investors than further-out exits even if substantially larger. Under present bias, investors forgo longer-term […]

Not Invented Here Not invented here is a cognitive bias defined by Wikipedia as the aversion to contact with or use of products, research, standards, or knowledge developed outside a group.  Investors can be biased toward startups that have developed the idea and strategy with the investor’s input.  This leads to investments into startups that […]

Neglect of Probability Neglect of probability is a cognitive bias defined by Wikipedia as the tendency to completely disregard probability when making a decision under uncertainty. Investors can be biased by their previous experiences and ignore the probability of success or failure in potential startup investments. Those who lost money on previous investments may be […]

Law of the Instrument The Law of the instrument is a cognitive bias defined by Wikipedia as the over-reliance on a familiar tool or method, ignoring or under-valuing alternative approaches.  “If all you have is a hammer, everything looks like a nail.” Investors use the deal flow and screening process they are most familiar with.  […]

Loss Aversion Loss aversion is a cognitive bias defined by Wikipedia as the disutility of giving up an object is greater than the utility associated with acquiring it. Investors will continue to hold a position in losing startups because of hating to lose and clinging hopefully to a potential turnaround. To overcome loss aversion startup […]

IKEA effect The IKEA effect is a cognitive bias defined by Wikipedia as the tendency for people to place a disproportionately high value on objects that they partially assembled themselves, such as furniture from IKEA, regardless of the quality of the end product. Investors will have more affinity for a startup if they’ve had a […]

Groupthink Groupthink is a cognitive bias defined by Wikipedia as the psychological phenomenon that occurs within a group of people in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome.  Since many investors invest as a group and use social proof as part of their decision […]

Mere Exposure Effect Mere exposure effect is a cognitive bias defined by Wikipedia as the tendency to express undue liking for things merely because of familiarity with them. Angel investors are much more likely to invest in deals in which they have more exposure to it.  This can lead to investments in substandard startups. To […]

Gambler’s fallacy The gambler’s fallacy is a cognitive bias defined by Wikipedia as the tendency to think that future probabilities are altered by past events when in reality they are unchanged.  Investors bet on startups that follow what other recent successful startups have done even though the potential of the startup is no better than before. […]

Frequency Illusion Frequency illusion is a cognitive bias defined by Wikipedia as the illusion in which a word, a name, or other things that have recently come to one’s attention suddenly seems to appear with improbable frequency shortly afterward. This comes from the mind’s selective attention kicking in when hearing something new.  The mind then starts […]