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How often do institutional investors fall prey to the sunk cost fallacy? If you don't meet your milestones, you're probably not getting more money from the sam
by jayjay71 10y ago
How often do institutional investors fall prey to the sunk cost fallacy? If you don't meet your milestones, you're probably not getting more money from the same investors. VC's make a lot of mistakes, but throwing good money after bad seems pretty rare to me.
- new299 10y agoWhen developing a new basic technology the milestones are often vague, and they're generally not open to DD. So hitting milestones in taken on trust and open to interpretation quite often. Sink cost doesn't work quite the same way. It's more that they evaluate the investment as good because someone else put in a bunch of money (and they expect know what they're doing/did good DD).
- jayjay71 10y agoI can agree that many investors will assume that because other firms invested, that is a "signal" that they use to invest themselves, and in that sense raising money can give you momentum. But I disagree that that is the same thing as the sunk cost fallacy. What I am claiming is that investors are not likely to reinvest once they realize the company is not performing as expected. It's only if they've spent their own money, and then put more money in a subsequent round that they are prey to the sunk cost fallacy.
- new299 10y agoRight, I think we agree. It's not a sunk cost fallacy. It's more sink cost signaling or something.