Cognitive biases are generally present in every aspect of the deal cycle, deal origination, screening, due diligence, investment committee decisions, and negotiations, as well as decisions on how and when to sell.
Biases have a significant effect on deals the firm pursues, but how the investors interact and make decisions about the companies they have invested in is equally important. These cognitive biases typically increase default risk by 25-30%, and delay investors from acting by an average of 12-18 months when critical changes are needed within the firms that they invest in. This has a significant effect on success and performance.
At Behaviour Lab we work with private equity firms to identify structural cognitive biases by analysing deals and decision-making processes. We also assess how individuals interact with investment committees and managers leading the companies in which they invest. We then tailor debiasing methodologies, establish standard processes for running debiasing actions, implement necessary changes on an organisational/institutional level, and form ongoing monitoring systems for teams.