Published in the San Diego Union-Tribune, February 21, 2022
by Neil Senturia
I had an interesting experience with a startup. I ran into what is called “The Curse of Knowledge.” The curse is defined as a cognitive bias that occurs when an individual, communicating with other individuals, unknowingly assumes that the others have the background to understand.
When you are an expert in something, it is hard to imagine what it is like to not know what you know.
Let’s imagine that you are a teacher, and you assume that the student already has a background knowledge so he can understand the new concept you are discussing. It is hard for the student if he lacks your expertise.
And in the startup, finance, deal world, asymmetrical information can lead to one party having an advantage. But having it does not mean you will exploit it. In my little story, I was considering funding a tiny company, with two young co-founders. Having done deals for 30 years, and having a raft of wickedly smart attorneys, there were myriad ways that I could take advantage.
Instead, we agreed on a very simple cap table, and then I had my wickedly smart attorney send a standard set of formation documents, down the middle, right off the word processor, same ones for the thousandth time, without any advantages taken. And the deal included a substantial initial funding from me and my pals.
The co-founders decided they need their attorneys to review. Their attorneys, who were not startup deal attorneys, along with the co-founders raised 119 concerns, of which 119 were irrelevant to my way of thinking at this point in the process. I told them that the documents were baseline, standard corporate stuff, but because this was their first deal, they did not believe me.
I could see that this was going to be a heavy lift, and I decided to pull the plug and bail out. The curse got me. In fairness, we all may have missed an opportunity, but the question I might ask of first-time co-founders is, why is the default position an assumption that they are being taken advantage of?
Think about any area of expertise — doctor, lawyer, plumber, electrician, etc. Every area of work carries with it deep skill and information. I do not know anything about the wiring in my garage junction box, and I am not supposed to — unless I am a journeyman apprentice electrician learning how to avoid electrocuting myself.
When the guy comes to fix my garage door, my default is gratitude. I assume he knows what he is doing and that he is only selling me what I need. But in the startup game, that perspective is often discarded in favor of distrust, colored by the dark shadow of greed.
And the twin sister of greed is arrogance. Allow me.
In the Los Angeles Times, Liam Dillon tells the tale of Woodside, the most expensive community in California and maybe the entire country. The median home price is $4.5 million, and it is the safe haven to the uber-wealthy of Silicon Valley. The town claims the most famous watering hole/café for dealmakers, Bucks. The booths are packed to the gills with VCs.
Dillon writes, “The well-heeled Silicon Valley suburb of Woodside has come up with a novel way to block plans that would potentially bring in more affordable housing: Declare itself Cougar Town.”
Let me clarify, cougar is not referring to “older woman who use predatory sexual techniques on younger men.” Nope. The community’s claim is that the entire town “is habitat for a potentially endangered species — mountain lions.”
Do the richest of the rich have no shame? Affordable housing? You must be kidding, not in our neighborhood. I suspect this gambit will never fly, but can they look in the mirror in the morning and not be disgusted with who they are and what they stand for? You can’t turn a blind eye to despicable behavior that seeks to game the system and once again try to screw the little guy, and then hide behind your maxim of support for entrepreneurship.
Update: Late last week, the Woodside Town Council abandoned its approach due to legal threats from the California attorney general and relentless social media ridicule.
My question is, did you really think you would get away with it?
Rule No. 701:
Maybe the VC is the endangered species.