Thinking and feeling

In this edited extract, Laura Huang explains how watching investors shaped her ideas about the role of gut feelings.

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I was curious about how investors really decide what startups to fund. Is it actually about the financials, the business model, the metrics, the hard data? Or, as I suspected, do they just use their gut feel? What is their gut feel comprised of? Did the hard data reinforce their gut feel or interfere with it? How did their prior experience influence it? Gut feel was thought to be inexplicable and unquantifiable. Could I quantify the unquantifiable?

I began by interviewing investors on how they make their investment decisions. For a long time, I didn't mention the term “gut feel” at all, mainly because I wanted to see if they would use or allude to the term without my prompting.

Even I didn't expect every single investor to gloss over the “hard” data – information in the form of financials, business models, and any sort of analysis in written form – so quickly and so fluidly and discuss how their gut feel drove their decisions.

When I completed the dissertation in 2012, there were a few significant findings that jumped out at me. First, investor gut feel was experience-based. It was uniquely personal and individual, and could not be replicated or passed down from person to person. Which meant something important: once these investors tried to explain their gut feel to someone else – to justify the logic underlying it – they would essentially talk themselves out of the right decision. Being able to intuit is a skill, built up over years of personal experience.