How VCs Make Decisions So “Quickly”

Q: How did Masayoshi Son trust WeWork at its founder so quickly? He has met Adam Neumann for only 4 minutes and decided to invest $4.4 billion.

Pattern-matching.

It what almost all investors do. At least the heads of investing firms. FBOW.

First, even if Masayoshi Son only met for Neumann for 4 minutes, the Softbank team had spent tons of time pouring over financials, doing diligence, visiting customers, etc. Tons of time. That’s what the investing team is for.

Second, the heads of most huge PE/VC firms often have to quickly assess CEO candidates proposed by their teams. The boss / the head of the firm often only meets once with a CEO before a large check goes in. Not the same as Softbank, but I intro’d 2 CEOs to a $10b+ fund who funded both companies (both winners) within weeks. Both were $60m+ checks. Not Softbank big, but big. And the head of the firm made a decision 15 minutes into meeting with each CEO. He had to. They probably do 50 of these investments per fund, and he has to meet probably 100+ CEOs as part of that. But that was after his team had done lots of work to have conviction on the investments.

So the folks at the top of PE/VC firms end up doing a lot of pattern-matching to make 15–20 minute confirmatory decisions after person-months of work their teams have already done.

And for better or worse, they pattern match. Masayoshi Son apparently was pattern-matching with Alibaba, his top investment. Everyone does it. It allows a lot of bias to creep in. And it risks not evolving with the times.

But it is hard to make a decision in 20 minutes or less if you don’t.

View original question on quora

Published on December 4, 2019

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