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 process, it’s easy to fall into the trap of groupthink.

In pitch sessions, investors often follow the lead of other investors so as to fit in even if they don’t necessarily find the startup to be attractive. 

To overcome groupthink, build diversity into your group with different skills and investment strategies.

Maintain a neutral position throughout the process. 

Encourage discussion among the members to surface counterarguments and questions.

Schedule time for independent research to find out more about the deal from other sources.

Dedicate someone as the devil’s advocate to vocalize counter opinions.

Look for the naysayers and encourage a healthy debate with alternative points of view about the deal.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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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.