“When do you decide to say yes to a deal?”
My friend asked me this recently. He realized that he had gotten in the habit of saying no. He’s not in venture capital, his job has just become fancy ways to say no to new ideas in business development, but I thought his question was a good one. His confusion comes from the understanding that some of the ideas must be good, but the data won’t back them up.
In my job, I say yes 50 times a year to deals. This means that I say no to 1000+. It’s easy to get in the habit of saying no, I say “no” 95% of the time, however, it’s important to keep yourself open to yes.
Now if Venture Capitalists say 95% of the time, they build up a check list of criteria like body armor to be able to quickly filter through deals. This is a survival mechanism of pattern recognition.
- Do they have a background in the industry?
- Can they build it?
- How many founders are there?
- Is the team qualified?
In the venture capital business every single piece of data points logically toward a no. We are logical people:
- Facebook or Google could do it.
- Currency needs the government.
- Virtual Reality didn’t work 30 years ago, why is today any different.
- No one wants to watch people playing video games.
Everything points to no, yet every day, week, year people continue to change the way we live, So people do get it right. But the easiest way to de-risk an investment is to say no or wait. So how should you assess when to say yes to a crazy idea?
In 2013, there were a bunch of brain scientists from Dartmouth that did a study to attempt to map out how the human brain “mediates complex and creative behaviors such as artistic, scientific, and mathematical thought,” and what they found was that different pieces of the brain worked together as a neural network to “Generate novel ideas” put simply, to imagine how things can work and create the new. This is how the venture capitalist constantly has to think in order to make decisions, constantly connecting the left and right brain.
The way I look at it is this, the left side of the brain is for the things we know: your name, your perception of the world, the things you have learned from experience, logic, reasoning... data. The right side of the brain is for the creativity, the imagination, the arts. What this experiment is saying is that the left and the right parts of the brain have to work together in order to create new things. The left side of the brain will tether you to the world you know and the right side of the brain will reference the unknown to build something new.
Now why am I talking about the brain? The brain is what you use to make decisions of yes or no.
The success of my job as a venture capitalist is determined by being able to imagine the future, or at least reference what it could be like. It is determined by where I say yes, not where I say no. No is safe, no is easy, with no I’m only using one side of my brain, the logical reasoning side. The side that says — “Here is the data.”
I was the first investor in Coinbase, 4.5 years ago, it wasn’t so much a startup, as it was one person. And that person was Brian Armstrong, and he had just left AirBnB to start a company in the “Bitcoin” space, which also wasn’t a thing.
I’ve told this story before, but look at it more through the lens of decision making.
What I knew about Brian: He was a first 150 employee at AirBnB, a known rocket ship. He was bald. He was an engineer. So this was the data I collected on the left side of my brain. And all of that stuff pointed to what I knew to be a solid founder. What I also knew was that he was starting a company in Bitcoin, which I knew nothing about.
So as he explained Bitcoin he painted a vision of the future, he spent less time on his company than on Bitcoin itself. He painted a vision of how one day the world would be on one financial system. He captured my right brain and held it hostage — This had me imagining, it had me building a world where there were no boarders, where you could frictionlessly transact everything. Traveling would be welcomed everywhere. He took me to a what if? What if the world was frictionless? What if I had no currency exchange rate? What if this works??
Now, his background, his ability to build, his knowledge in the space, these were all the elements that eased any fears around skill level and credibility. So the left side of my brain’s check list was cleared, and the right side of my brain got swept away in possibilities.
I say yes when the logic has signed off on the data, and the “What If” sweeps me into a better world. In fact sometimes I allow the “What if” to over ride all logic and reasoning.