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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.

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

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SpaceCom is taking place online this year for free. Here's what you need to sign up for. Photo courtesy of SpaceCom

Today marks the first day in SpaceCom's two-week online conference featuring space entrepreneurs, NASA executives, government experts, and more.

Usually a must-attend event hosted at George R. Brown Convention Center in downtown Houston, SpaceCom is free and virtual this year. Register to attend and check out this curated list of 10 can't-miss discussions.

Click here for the full schedule.

Tuesday, October 20 — General Session: Whole of Government

Greg Autry, director at SoCal Commercial Spaceflight Initiative, will moderate a discussion with Kevin O'Connell, director at the Office of Space Commerce Department of Commerce, and Scott Pace, executive secretary at the National Space Council. The panel will discuss how they will work together on policies and actions they need to take to enable the trillion-dollar space economy.

This virtual panel takes place online on Tuesday, October 20, from 11 to 11:45 am. Learn more.

Tuesday, October 20 — Carbon Footprint and Emissions Monitoring

Satellite data can give governments and industry the ability to monitor and reduce the carbon footprint. In this panel, experts will discuss the companies that operate and use satellite data to monitor, manage and profit from satellites that monitor the planet's carbon footprint.

  • Lou Zacharilla, director of Innovation Space & Satellite Professionals International (moderator)
  • Sebastien Biraud, staff scientist and Climate Sciences Department Head at Lawrence Berkeley National Laboratory
  • Steve Hamburg, chief scientist at the Environmental Defense Fund
  • Yotam Ariel, CEO of Bluefield Technologies
This virtual panel takes place online on Tuesday, October 20, from 1 to 1:45 pm. Learn more.

Thursday, October 22 — Keynote: Industry Applications

This general session features how Amazon Web Services helps terrestrial industries take advantage of space enabled services already in place at competitive pricing. Speaker Clint Crosier from Amazon Web Services and moderator Douglas Terrier, chief technology officer at NASA.

This virtual panel takes place online on Thursday, October 22, from 11 to 11:45 am. Learn more.

Monday, October 26 — Keynote: International Space Station

The new head of NASA's International Space Station program, Joel Montalbano, who is based in Houston's Johnson Space Center, provides a status of and exciting new industry applications for the ISS as well as insight into the future of ISS.

This virtual panel takes place online on Monday, October 26, from 11 to 11:45 am. Learn more.

Monday, October 26 — NASA Session: Transferring NASA Technology

NASA's treasure trove of technology is available to American industry and entrepreneurs to apply in profitable ways. In this session, NASA technology transfer leaders — Daniel Lockney, Kimberly Minafra, and Krista Jensen — will discuss the many ways the private sector can tap into the accumulated knowledge NASA has to share.

This virtual panel takes place online on Monday, October 26, from 12 to 12:45 pm. Learn more.

Tuesday, October 27 — Space Tourism: The Excitement and Expectations

A panel of industry experts will discuss the space tourism industry, taking a deep dive into what the future holds, constraints for the industry's ability to address the market for many years to come and how some of these projects will be executed from a business, technology and execution perspective.

  • Amir Blachman, chief business officer of Houston-based Axiom Space
  • Jane Poynter, founder and co-CEO of Space Perspective
  • Sudhir Pai, CEO of Autonomous Energy Ventures
  • Richard Garriott, private astronaut (moderator)

This virtual panel takes place online on Tuesday, October 27, from 12 to 12:45 pm. Learn more.

Tuesday, October 27 — Spaceports as the Innovation Hub for Regions

Spaceports around the world can, and in many cases are, serving as regional innovation centers for high tech activities and creating positive economic development opportunities. Speakers Cherie Matthew, project manager at Corgan, and Pam Underwood, director at the FAA Office of Spaceports, review what the future looks like for spaceports and what funding will be necessary with moderator George Nield, president of Commercial Space Technologies LLC.

This virtual panel takes place online on Tuesday, October 27, from 1 to 1:45 pm. Learn more.

Wednesday, October 28 — NASA Session: Industries of the Future

NASA technology is creating the underpinning for new industries of the future. NASA's work has already changed the world with advances in telecom and microprocessors. More is yet to come. This panel led by Douglas Terrier, NASA chief technologist will explore the industries on the horizon that will stem from NASA innovation.

This virtual panel takes place online on Wednesday, October 28, from 12 to 12:45 pm. Learn more.

Thursday, October 29 — Keynote: Women of Space

NASA's head of human exploration, Kathy Lueders, based in Houston's Johnson Space Center, discusses the crucial role that women have, are, and will continue to provide in getting America back to the Moon, as well as in creating the trillion-dollar commercial space economy with moderator Vanessa Wyche, deputy director at JSC.

This virtual panel takes place online on Thursday, October 29, from 11 to 11:45 am. Learn more.

Thursday, October 29 — Zoom to the Moon

An international panel discussion with Orion Program Managers about progress toward launching NASA's first human-rated spacecraft to travel around the Moon since 1972.

  • Catherine Koerner, NASA Orion Program Manager NASA at JSC
  • Didier Radola, head of ORION ESM Programme Airbus
  • Nico Dettman, Lunar Exploration Group Leader for Lunar Exploration Development Projects European Space Agency
  • Tony Antonelli, Artemis II mission director Lockheed Martin

This virtual panel takes place online on Thursday, October 29, from 1 to 1:45 pm. Learn more.

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