Thin-slicing in Venture Capital: Tapping the power of the Adaptive Unconscious

Every entrepreneur knows the importance of placing their best foot forward so as to leave a good impression with investors at the first meeting.  Yet more often than not, the entrepreneur finds the session rapidly going south.  The less patient angel or VC’s body language would subtly change, as they shift about in their seats and fiddle with their BlackBerries.  With the more polite ones, it is a lot harder to tell that you’ve lost their attention during your pitch, since they continue to maintain their pleasant demeanor and ask smart questions throughout your pitch.  You can only really be sure weeks after your first presentation, when your emails come back with a lukewarm response.  And then there’s the direct ones, who would interject your delivery mid-way and ask a string of questions in an attempt at uncovering the answers that they were really looking for.

At this point, it would make sense to clarify that the above holds true only for top-notch angels and venture capitalists who know their boomz and shingz.  You might be getting the same responses with VCs further down the pecking order, but their motivations for behaving in a similar manner are probably polar opposites.

Tough luck, your start-up (obviously) has been deemed to lack the ingredients for success.  What’s less obvious is that despite your best efforts, these top-notch VCs may already have written off your chances merely 5 minutes into your pitch.  They’ve seen many pitches, and have enough experiences with disasters, walking zombies and wild successes to develop a sophisticated set of mental processes that influences their judgment and decision making.  In the words of Malcolm Gladwell in “Blink – the power of thinking, without thinking“, these VCs have thin-sliced the start-up.  In other words, they have quickly and quietly toggled between the conscious and the unconscious, processed what little information there is and arriving at a decision.

Thin-slicing and the Onion

Blink – the power of thinking, without thinking

Blink, by Malcolm GladwellOver the weekend, I had the rare luxury of catching up with my reading.  Malcolm Gladwell has always been a personal favourite, harking back from my days at Carnegie Mellon – Professor Baruch Fischhoff had referenced extensively to him in “Behavioral Decision Making”, a course that I still recall fondly.  The more I learnt about the Adaptive Conscious from the book, the more I realized how much I was relying on this useful part of my mind.  I have saved a lot of time as I drove down Bukit Timah Road, unconsciously weaving in and out as my adaptive unconscious picks out the smoothest-moving traffic lanes.  It also struck me as something that I unknowingly subject entrepreneurs to when I am being pitched to.  The notion of applying the concept of the adaptive unconscious to venture capital got me all excited for the rest of the weekend.

In what Gladwell contends is an age of information overload, he finds that experts often make better decisions with snap judgments than they do with volumes of analysis.

Unfortunately, an expert’s ability to thin-slice can also be corrupted by their likes and dislikes, prejudices and stereotypes and information overload.  Gladwell also discussed two particular forms of biases, namely Implicit Association Tests and Psychological Priming that can play havoc with the adaptive unconscious.

I thought I’d give it a shot at distilling Gladwell’s wisdom into a short guide, in order to leverage and gain maximum benefit from the untapped powers of our adaptive unconscious.

Suppositions/Tips on Adaptive Unconscious for VCs

  • If you think your ‘gut’ is calibrated, try to rely on it more so that it’ll continue to stay sharp as you gain confidence using it.  If you thought it was calibrated but it ended up not being the case…well too bad I guess;
  • Refrain from passing judgment on start-ups that you see at elevator-pitch events until you have had a chance to listen to their pitches again in private.  This should reduce the likelihood of your adaptive unconscious being subjected to any biases;
  • The adaptive unconscious of VCs of certain personality types are a lot less prone to biases than others i.e. VCs who are more exposed culturally and are more well-traveled, or have been brought up in a more inclusive society will be less likely to fall back upon prejudices and stereotypes;
  • If you’re a highly judgmental person who has a baggage full of stereotypes you subscribe to, you’re most likely to fail as a venture capitalist. Quit now, and save entrepreneurs a world of hurt.  Join the judging panel for the American Idol – I heard that even Paula Abdul didn’t get rehired, so you might have a better chance of success there;
  • If an entrepreneur is loading you with a ton of info and statistics, ask for time out and regain control of the meeting. You and I both know all those projected total addressable markets and exit P/E comparables are a bunch of bull;
  • If you’re being pitched a venture in an industry you’re not familiar with, refrain from calling upon your adaptive unconscious and ask for your other partners or even associates who are more familiar with that space to join you at the meeting;
  • Use your adaptive unconscious as a counter-check, by forcing yourself to make a snap judgment during or at the end of the pitch, and revisit the deal a week later and spend a good tract of time on the deal, and compare both results for consistency; and
  • Don’t try to over-rationalize whether to go ahead with an investment or not – it’s not possible for one to introspectively review the adaptive unconscious.  You either dig it or you don’t.  Just go with the flowwwww…Om Shanti Om

Let me know how far I missed the mark by with these thoughts above! 🙂

About James Chan

James Chan is an entrepreneur, investor, geek, photographer and husband/father based out of Singapore. Apart from frequent travels to Vietnam, Myanmar and Indonesia for work, James can also be found online via his trusty 15" Retina MacBook Pro or iPhone 6+.