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 will believe more strongly in a startup pitch if they agree with the proposed fundraising plan and exit strategy.
Startups that propose outsized forecasts and out-of-the-norm exit valuations will find it harder to gain the support of the investor.
To overcome the belief bias, investors should consider the market sector, the strength of the technology and product, and the skills of the team before estimating the outcome.
Startups should make clear the facts behind the proposed valuation and exit plan using comparables and other factors that impact the outcome.
The startup continues to grow and change so it’s important to stay up to date with the latest valuations and fundraising plans.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.