As an investor, two of the most common biases to be aware of include optimism and overconfidence. These two (2) biases are also present in those entrepreneurs seeking project funding. Analyzing how these biases arise in your mental framework is critical to improving both investment decisions for investors and facilitating the funding process for businesses.
Optimism is the hopefulness and confidence that a successful outcome will result. Our brain allows for us to perceive things in a brighter light. Most people view themselves as being “above average” and a bit superior in their decision-making abilities. It is possible this is attributable to the evolution of humans. While hunting, humans were forced to take risks and become optimists to survive. Being optimistic is not a bad thing; but as an investor it is important to understand how it plays into our decision-making and as an entrepreneur it is equally important in raising capital. The human brain is a magnificent processor of information, but when emotions cloud judgment it can work against us.
Overconfidence is tightly correlated with optimism; but there are some key differences. Overconfidence can be defined as “unwarranted faith in intuition, reasoning, judgment, and abilities.” This bias is what leads investors into chasing returns and not fully considering the risks with which their investments carry and it leads entrepreneurs to so over value their project’s potential that it cripples their efforts to raise capital. Both investing and raising capital are the ultimate game of probability and chance, resulting in a difficult learning environment. The casino and gambling industry is another place where this natural phenomenon occurs. One of the many reasons as to why casinos have an enormous edge over their gambling counterparts results from the superior decision-making ability people believe they possess.
“The real voyage of discovery consists not in seeking new landscapes, but in having new eyes.” —Marcel Proust
Finding an outsider who can offer a fresh perspective on the prospects of an investment opportunity may help eliminate unforced errors. Often, we are just too involved in our own perspectives to be able to see things as they really are when we are wrong. We must remain humble, realizing that as much as we’d like to always be right, mistakes will be made from time-to-time. Humility fosters an open mind and allows us to become better and better decision makers as we go along. As the saying goes:
“Wisdom flows into the humble man like water flows into a depression”
While looking for an edge as an investor or as an entrepreneur looking to raise capital, we are susceptible to confirmation bias as well, where we only seek new information that reinforces our pre-determined thesis. As a result, overconfidence is difficult to identify in real time because the information we collect confirms our desired outcome. As Warren Buffet has explained that what counts for most people “is not how much they know, but rather how realistically they define what they don’t know.”
Bach Capital Management is that third party that can offer a fresh perspective on the prospects of an investment opportunity for investors while at the same time helping facilitate the funding process for entrepreneurs. We are a Management Consulting Firm specializing in facilitating the acquisition of project financing through our ability to create investment grade collateral to support project funding requests through the UPPLIFT™ Investment Strategy.
UPPLIFT™ stands for Uncorrelated Principal Protected Life Insurance For Tomorrow and is a proprietary investment strategy that consists of Life Insurance/Annuities, Treasury Management and Precious Metals. Our methodology provides investors in high-risk alternative investment opportunities the ability to invest with little risk relative to the types of investments. At the same time, it affords those projects seeking financing with a solution that will facilitate their capital raises. Thus, resulting in a process that really takes the risk out of the investment for investors without the entrepreneur incurring substantial cost or administrative burden.
We are not lenders nor investors. We do not provide project funding and our fees are for services rendered. Our service is in creating investment grade collateral through the use of our methodology that will assist viable businesses/business ideas in obtaining the financing they require. Furthermore, our fees are a fraction of what is currently charged for a similar product. Bank Guarantees or Standby Letters of Credit, which are the other types of products used to support financing requests typically charge between twelve (12%) percent to twenty (20%) percent of the total project costs.
We cannot and do not offer guarantees because ultimately whether you are funded depends solely upon the viability of your business and/or business idea. There are thousands of projects seeking financing. By engaging us you differentiate yourself from your competitors and get the ability to obtain that critical first look from investors/lenders by having sufficient collateral to protect the investment amount at a very manageable cost. This differentiation will allow you to attract the interest and facilitate the funding process from investors/lenders because they know their principal will be protected and they will be receiving dividends from day one while the project is being developed. That being said, however, as news of our services spread, more and more investors have reached out expressing their interest in projects that have adopted our Methodology. Those investors may also be made available to you through our engagement at no additional fees paid by you to us.
Please feel free to reach out to us to learn how we can help you achieve your goals whether you are an investor or an entrepreneur.
