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Behavioral Psychology

In: Business and Management

Submitted By HIramAbiff
Words 795
Pages 4
I’m Chief Operating Officer for a venture fund. Working with new businesses (startups) for years, I’ve noticed an odd thing. When I see startup teams for the first time, their eyes are shining, their enthusiasm is sparkling, and they show enormous productivity. And…they’re desperate for money, of course. They ground their financial needs and we see that without investments they can’t move further. Investors believe in their idea and business model, and everybody admires their inspiration. What happens when money are already given to those startups? We observe dramatic decrease in efforts and productivity. Deadlines set before are not met. Product’s time to market exceeds all the deadlines. Enthusiasm is gradually being replaced by procrastination and everything ends up to demanding more money from investors.
Why this problem is so painful? There are millions of startups arising every year worldwide. Thousands of them are supported by investors. Major part (over 90%) fails but in many cases reasons of failure lie not in market field. It’s not about inferior product or bad business model. Change in team’s behavior after raising funds effects productivity and flexibility and sometimes leads to failure. Funds and angels rarely believe in financial assessments and project deadlines now, finding other ways to secure their investments.
This problem is already covered with our course up to date, for example in the part when Dan describes loss aversion effect. Unlike the TV sellers being pre-paid and having a fear to loss their incomes, our startup teams ARE NOT afraid of having to return investments to funds or angels. It’s well known rule of venture investment business – when you invest in a startup, prepare to losses. So, startups feel their impunity. Moreover, they avoid detailed communication with their investors not to be blamed for lack of efforts or for bad…...

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