Fear paralyzes entrepreneurs while safety fosters growth and risk-taking. The speaker explores how loss aversion shapes venture capitalists' decisions and why fear can kill creativity and decision-making.
I would say there are two emotions. Basically, a venture capitalist can drive in an entrepreneur or project entrepreneur, entrepreneur, or even elicit from an entrepreneur. And I think those two things are either fear or safety at a high level. So fear, if you project fear onto an entrepreneur, it's pretty dangerous because you're living in a world of really imperfect information. And so if they're always looking over their shoulder, afraid or paralyzed, to make a move, to take a step forward, to take a chance, it can be really, really debilitating. Think of any time you have been afraid in your life or had fear. It's super paralyzing. Can't really do anything if you think about it. And we really believe this. Fear kills creativity, it kills risk taking, it kills all your personal growth. It's a huge, huge issue. If you think about safety, which is really having the space to be yourself is what I really mean by safety. It's the exact opposite, right? You become more creative, you actually take risks, you grow. Think of this school. It's safe. It's a great place to learn. This is what this school is all about. But fear is a big issue, right? So let's even unpack that further, right? So why does a venture capitalist have fear? Right? Does anybody know what loss aversion is? Raise your hand if you know what loss aversion is. Have you heard of it? Just a few of you. It's kind of like what it sounds, right? It's the fear of losing. It's thinking negatively, always about loss, instead of actually thinking about what is capable, what actually can happen. So to break it down to what a venture capitalist thinks, it's actually the fear of losing money. And it can happen in a couple ways. So it can happen right at the beginning of an investment. So you're making a new investment, you're kind of like, wow, this can go wrong. That can go wrong. By the way, you can talk yourself out of every single investment possible as a venture capitalist. Because there's always 100 things wrong at a really, really, really early stage, right? So it's that fear. It's also the fear of when you've already made an investment so things aren't going so well. Say you put $2 million in a company and the company starts doing pretty well, and now you have to put another $5 million in the company. Does your mind go all the way back to the 2 million that happened before? And you say, well, I already. I think I'm going to lose that 2 million, I'm going to lose this 5 it's going to be 7 million, or are you thinking, well, you know what? We're going to put this money in, we're going to go win, Right? So it's a real big fear of losing. Everybody has it. So it's not like nobody's holier than thou, but everybody has this fear. And it's not just venture capitalists, but it's in life. So what we tried to do at tru, and this is how we design, this is where I get to how we design the firm. We wanted to put EQ at the root of what we were doing. So what we would try to do is design a way to actually lessen loss aversion so we could actually bring safety into the boardroom so that the entrepreneur could be their best self.
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