Nivi: Given how quickly deals move, how much time do I really have to apply judgment? Won’t I miss out if I take time to think things through?
Naval: Judgment isn’t necessarily due diligence or even thinking. Judgment is the preparation you do before a deal arrives so that your subconscious can process it quickly.
Early-stage investing is more about gut feel than due diligence
Judgment for early-stage investing doesn’t involve extensive due diligence. Yes, it’s smart to check references, talk to other people and think it through. But that takes days, not weeks. Over time you will build up a gut instinct, and you will require less and less data to assess a deal.
You’ll know if a founder is credible by listening to them. You’ll know if they come from a credible network, which means you can spend less time checking references. You’ll know how customers in the space think and you’ll develop a gut feel for what founders can sell them.
The best investors are immune to FOMO
Startups are now trained to run a tight, fast fundraising process. This is especially true for startups coming out of accelerators. Some of them pressure you hard to make a decision.
The best investors are immune to the FOMO effect. If you push them to decide within 48 hours, they’ll say, “Well, I don’t decide within 48 hours, so it’s not a fit for me.” They won’t look at it, even if it’s a hot deal.
FOMO works on many investors—up to a point. I employ a 24-hour cooling off period for deals I consider: Even after I decide to invest, I force myself to wait 24 hours before moving forward.