Many investors claim to make decisions based on ‘gut feeling,’ but what does that really mean?
Nina Achadjian, partner at Index Ventures: Investing is the fine art of balancing a gut feeling with data, which could be everything from market size to certain trends.
Regardless of the stage, having a qualitative view of the founder is important. This view is often shaped by the ability to clearly articulate the business and the skill of taking a lot of complex information and simplifying it down to key drivers.
As one mental framework, ask yourself “If I was in jail, would I call this person to get me out?”
Mark Fiorentino, principal at Index Ventures: Sometimes it feels like investors use ‘gut feeling’ as an excuse to play Russian Roulette with their investments, but in most cases that’s not true. I’m a big believer in gut feeling being an amalgamation of all your prior experiences. That includes your feeling about the personality of the founder and what makes them tick, and also your knowledge about the product and industry sector.
Investors tend to gravitate toward personalities that they can see have been successful in the past. I gravitate towards people with intellectual curiosity and human empathy for the pain point their product solves, as well as a customer-comes-first mentality. Package all that in a founding team, and it translates to having a good gut feeling about them.
If you’re an investor with a lot of experience in a certain sector or with a certain type of product, then a lot of gut feeling stems from that. An investor will ask themselves if this is a product and founding team in an area they know inside out, especially in a hyper-growth business, and they’ll ask if the market is ready for the product.
I spent nearly four years at Stripe before joining the team at Index, so if there’s a product that I know and have used in the fintech space — a B2B, SaaS tool in customer success, support, finance, accounting or risk — I’ll understand the pros and cons of those. If you’ve used a product for years, then naturally you’ll have a gut feeling about it. I’d ask whether my team would pay for a product or service like this, and whether they’d use it to replace an existing service or if it’s just a nice-to-have.
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