14. On Anchoring Bias in life and business

Dear Co-creator;

In the autobiographical book “A Man For All Markets,” Edward O. Thorp, one of my role models, talks about “anchoring [as] a subtle and pervasive aberration in investment thinking” in that “focusing on a price that was of unique historical significance to me, only me, namely my purchase price.” Nobody cares about “your” purchase price, and you also shouldn’t as it has no relevance on value – it is just a random number, an accounting construct for your own portfolio at best.

But no. Where we enter things anchors us and this is true in many aspects of our lives. Where you quit or exit should have nothing to do with where you entered. Escalation of commitment is an egotistical bias. “Invested significantly” is a bias if the path forward looks murky with future analysis and prediction.

Anchoring also has the effect of overestimating the past (successes, failures, experiences, etc.) in the future performance equation. You weren’t as good (or as bad) as you thought you were. While not a clean slate per se, the future evolution is more incremental than cataclysmic especially as one grows older.

As I look at the AI landscape, and especially for AI-powered applications in especially fintech space, I see a ton of startups and companies going at it. The stack is getting built. 99% will die because of externalities. For instance, network economies dictate that there will be 5 AI accounting companies globally at scale. Time to think clearly about where in the stack we want to operate, and it is definitely not at the “plumbing” level of the stack.

Time to do some due diligence on the plumbing companies and make a bet on one of them and provide a higher level of intelligence (algorithm, software, product, or service). In other words, no anchoring bias…

I started sketching the MVP for our product. It is shaping up to be as simple as “connect your bank account, “answer 10 questions and get loans. No financials yet? Answer 30 questions and get a valuation estimate so you can anchor your venture capital negotiations. Connect your bank account, answer 30 questions, and sell your company. No upfront costs.

We will do the rest, even including the appropriate legal documents in your country. No cost for that. Meanwhile you can fire your accountant, as we already did your books for you. No cost for that.

Demand for money is easier, as always. But who is selling the money? Well, my frens, that’s the key now, innit? Who’s giving you the loan after your bank connect and 10 questions? Who is buying you out?

Out of the four use cases that I talked about, debt is the fastest. M&A is still interesting and faster. Impact investing is the most impactful. I am dropping VC as that’s where numbers are the least useful. However, providing valuations is a good marketing tool like the IQ tests that you have undoubtedly “not” taken online (unlike those who fed Cambridge Analytica with their precious data to sway elections). Who wouldn’t want to learn how “precious” their startup is 😊. I also want to give some competition to the likes of Carta. Because we simply can, and creative destruction à la Schumpeter is fun.

The plan for getting an anchor (gotta at least pay homage to the Anchoring Bias gods) supply partner is as follows:

1) Create an MVP (2 mos)
2) Select real demand use cases (2 weeks)
3) Crunch numbers, put together the package (1 mo)
4) Show package to IFC, banks, PEs (1 mo)
5) Pray that one of them likes me and innovation (and not necessarily in that order) and at least say they’d consider a pilot (what do you got to lose baby).

We started slow but picking up steam. Do you think we will still launch by Jan 1? 3 months is a lifetime and yet not enough time for the supply side. Place your bets:

Best to you and yours, O.

Ps. I really liked what Bing produced for me this time with the “US $100 bill with artistic flair.”