Behavioral Psychology

805 Words4 Pages
I’m Chief Operating Officer for a venture fund. Working with new businesses (startups) for years, I’ve noticed an odd thing. When I see startup teams for the first time, their eyes are shining, their enthusiasm is sparkling, and they show enormous productivity. And…they’re desperate for money, of course. They ground their financial needs and we see that without investments they can’t move further. Investors believe in their idea and business model, and everybody admires their inspiration. What happens when money are already given to those startups? We observe dramatic decrease in efforts and productivity. Deadlines set before are not met. Product’s time to market exceeds all the deadlines. Enthusiasm is gradually being replaced by…show more content…
In other words, after receiving funds, startup teams have lost their interest to their business started initially as a hobby. But how can this happen? Teams get money (=resource and awards), so after signing investment contract productivity should increase, as investors expect?
Unfortunately, even there’s a short peak of productivity, it often goes down soon. Like in experiment with gift and no-gift tasks held by Gneezy, effort and productivity increases for a short time, then it wanes quickly.
What if investors trying to minimize their risks are giving very little funds, exactly as much as business support requires but not more? Experiments by Heyman & Ariely (2004) found that low monetary payment decreases effort relative to no payment.
To my opinion, the key reasons of change in behavior are the following: 1) funds given are adding “market” factor to the team’s activity, 2) people don’t have a fear to loose investors’ funds (they burn that money before the business will be considered as success or failure), 3) they don’t have a feeling of social attachment and personal responsibility and perceive investor as a person “on the other side of barricade”.
What we can do to reduce an impact of this problem? First of all, investors should try to build long-term close relationship with the CEO and the team prior signing a contract and maintain this relationship further, creating a feeling that
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