Urgency is not your friend

When I’m are considering making an investment, urgency and speed to make a decision, are not my friend. If I’m under time pressure to decide about investing my hard-earned money without enough time to conduct a due diligence – pass on it.

Richard Branson famously said, “Business opportunities are like buses, there’s always another one coming.”

Without a detailed due diligence, third party verified data, references, advise and research – I feel like I’m going into an investment blind. Not knowing about potential problems and issues I should have uncovered early before parting with my money. The problem is once I’ve invested the horse has bolted and I’ll be playing catch up or working to try fix problems that If I had known early on – I wouldn’t have invested.

This urgency or time pressure comes from different sources. Theres the urgency concept used by scammers in email or text scams – “Act now or you’ll face jail time” or “If you don’t pay your debts by a set date, you’ll incur the rath of debt collectors”. Actually, the last one is real – you should pay your debts by the due date, debt collection is a real problem. But you get the just of it, urgency is a tactic used by scammers and desperate people to force you to overlook things, under-research, under-investigate and gloss over real problems and issues.

If we link this concept back to how Venture Capitalists make their investment decision, they are ultra selective when allocating their capital and making investments. Generally, a Venture Capital firm eventually invests or closes 4 deals a year and the firm considers, roughly 100 potential opportunities per closed deal (400) that’s is 1%.

Venture Capitalists devote substantial resources to conducting due diligence on (i.e., investigating) their investments: taking about 3 months to conduct due diligence, research, making reference calls, consulting expert professional advice…etc.

If I feel like I’m being pressured into making an investment, I ask myself my is there a time bound restriction here? Is the business running out of cash and if so, why are they? Are they not making money? Why?

Passing on an investment and saying: “Thanks but no thanks” has turned out to be some of the best investment calls I’ve made.

If you have a chance, read this case study: Gompers, Paul A., William Gornall, Steven N. Kaplan, and Ilya A. Strebulaev. “How Do Venture Capitalists Make Decisions?” NBER Working Paper Series, No. 22587, September 2016.

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