Money minds

Intuition or analysis: Here's what venture capital investors are looking for in startups

Are investors making decisions based on their gut feeling or by the numbers? Getty images

Conventional wisdom tells us people reside on a spectrum, having a natural tendency to process information in one of two ways. Those on one end of the spectrum process new information with their faculties of intuition, or gut feel; those on the other with their faculties of analysis, or logical reasoning. A fundamental understanding of this framework is valuable in the world of entrepreneurship and venture capital.

If you unravel the personal accounts of well-known entrepreneurs like Steve Jobs, Bill Gates, and Mark Zuckerberg or some of the great venture capital investors like Ben Horowitz or John Doerr, you are likely to encounter the co-founder and long-time boss of Intel, Andy Grove. Many have gone so far as to say that Grove is the person most responsible for creating the Silicon Valley — and in effect the Silicon Valley ethos — that drives American startup culture today.

"The question of gut feeling versus analysis is framed wrong. These are not independent. Gut feel that does not rely on analysis as a sanity check…is likely to be very arbitrary and very likely to be wrong. Analysis that is not answering questions that are raised by somebody's intuitive judgment…is a sterile analysis. So, the best of these things is a synergy between intuition…and analysis, and that synergy is better than either intuition or analysis."

— Andy Grove, 1999

Instead of a spectrum, Grove proposes that intuition and analysis ought to work as a feedback loop, with one continually feeding and reinforcing the other. This framework is critically relevant in the context of entrepreneurship — and specifically in the context of approaching VCs — on two accounts.

The first is that VCs try to understand how these two systems work together in an entrepreneur's mind, and factor that understanding into their evaluation. VCs want to understand the entrepreneur's product vision, empathy with the customer base, personal principles, and prior experience, with the sum of these parts and others providing insight into the entrepreneur's intuitive nature. VCs also want to understand how an entrepreneur leverages data to, for example, develop go-to-market strategy, structure the organization, and improve the product, all of which inform the VC's perception of the entrepreneur's analytical capacity.

As business data becomes ever more available, asking the right questions using one's intuition and developing answers through sound analysis of the data becomes increasingly important. Entrepreneurs who demonstrate they have sufficiently integrated these two systems together will enter the fundraising arena at an advantage.

The second reason Grove's framework is helpful is that VCs also use both analytical and intuitive approaches when evaluating entrepreneurs. Entrepreneurs who have the most success in striking meaningful relationships with VCs appeal to the VC on both fronts.

VCs pride themselves on their ability to make intuitive judgment calls on an entrepreneur, often coming to a decision in less time than it would take to read to this point in the article. They listen to the gut feeling that tells them whether or not an entrepreneur listens intently to questions and responds well to feedback. Likewise, they also enjoy the process of walking through the entrepreneur's analysis of the market opportunity, financial projections, and other data-driven subject matter. In this case, the analysis is more geared towards the business opportunity than the entrepreneur's personal characteristics. Therefore, winning a VC's investment requires an appeal to both the VC's intuitive and analytical faculties.

Part of what kept so many great innovators of the 21st century looking to Andy Grove as a business sage was that he would help guide them through their own psyches as they sought to make business decisions. Today, VCs use the same framework to evaluate entrepreneurs for investment that Grove used to advise them in business. Entrepreneurs who understand the significance of and relationship between the intuitive and analytical faculties — both in the context of building their businesses, as well as in the context of appealing to the disposition of the VC — will approach investors from a position of relative strength.

------

Moody Heard is investment analyst at Mercury Fund, a venture capital company based in Houston.

Trending News

 
 

Promoted

A research team housed out of the newly launched Rice Biotech Launch Pad received funding to scale tech that could slash cancer deaths in half. Photo via Rice University

A research funding agency has deployed capital into a team at Rice University that's working to develop a technology that could cut cancer-related deaths in half.

Rice researchers received $45 million from the National Institutes of Health's Advanced Research Projects Agency for Health, or ARPA-H, to scale up development of a sense-and-respond implant technology. Rice bioengineer Omid Veiseh leads the team developing the technology as principal investigator.

“Instead of tethering patients to hospital beds, IV bags and external monitors, we’ll use a minimally invasive procedure to implant a small device that continuously monitors their cancer and adjusts their immunotherapy dose in real time,” he says in a news release. “This kind of ‘closed-loop therapy’ has been used for managing diabetes, where you have a glucose monitor that continuously talks to an insulin pump. But for cancer immunotherapy, it’s revolutionary.”

Joining Veiseh on the 19-person research project named THOR, which stands for “targeted hybrid oncotherapeutic regulation,” is Amir Jazaeri, co-PI and professor of gynecologic oncology at the University of Texas MD Anderson Cancer Center. The device they are developing is called HAMMR, or hybrid advanced molecular manufacturing regulator.

“Cancer cells are continually evolving and adapting to therapy. However, currently available diagnostic tools, including radiologic tests, blood assays and biopsies, provide very infrequent and limited snapshots of this dynamic process," Jazaeri adds. "As a result, today’s therapies treat cancer as if it were a static disease. We believe THOR could transform the status quo by providing real-time data from the tumor environment that can in turn guide more effective and tumor-informed novel therapies.”

With a national team of engineers, physicians, and experts across synthetic biology, materials science, immunology, oncology, and more, the team will receive its funding through the Rice Biotech Launch Pad, a newly launched initiative led by Veiseh that exists to help life-saving medical innovation scale quickly.

"Rice is proud to be the recipient of the second major funding award from the ARPA-H, a new funding agency established last year to support research that catalyzes health breakthroughs," Rice President Reginald DesRoches says. "The research Rice bioengineer Omid Veiseh is doing in leading this team is truly groundbreaking and could potentially save hundreds of thousands of lives each year. This is the type of research that makes a significant impact on the world.”

The initial focus of the technology will be on ovarian cancer, and this funding agreement includes a first-phase clinical trial of HAMMR for the treatment of recurrent ovarian cancer that's expected to take place in the fourth year of THOR’s multi-year project.

“The technology is broadly applicable for peritoneal cancers that affect the pancreas, liver, lungs and other organs,” Veiseh says. “The first clinical trial will focus on refractory recurrent ovarian cancer, and the benefit of that is that we have an ongoing trial for ovarian cancer with our encapsulated cytokine ‘drug factory’ technology. We'll be able to build on that experience. We have already demonstrated a unique model to go from concept to clinical trial within five years, and HAMMR is the next iteration of that approach.”

Trending News

 
 

Promoted