https://www.inc.com/magazine/20110201/how-great-entrepreneurs-think.html

The class discussion on causal reasoning versus effectual reasoning got me wondering what type of reasoning appeals to the financiers of any entrepreneurial venture.

If your financier is, say, a Venture Capitalist who got there by serial entrepreneurship, would they still prefer a pitch by a budding entrepreneur relying heavily on effectual reasoning? Would they see themselves in that person asking for their money? And if they did, would they view that as a good thing, or would they view it as a risk that perhaps, only the could have overcome?

On the other hand, if as an entrepreneur you are appealing to an institution–that which is built upon causal reasoning–say investment banks, would they prefer you speak their causal language? or would they rather take a risk on the passion and spirit of an effectual reasoner?

This article, in particular, seems to shed some light on that, by explaining Saras Sarasvathy study in more depth. The entrepreneurs it seems would prefer to just get their product out there, their first MVP (minimal viable product) to their first customer, and then go from there. The institution, on the other hand, prefers broad market research because, importantly, they can afford that and thus they can afford to mitigate risks from top down as opposed to bottom up.

A big distinction was initial approach: entrepreneurs “sweat competitors later,” whereas the causal reasoning corporate types first did a competitive analysis, in a way of surveying the land as “hunter-gatherers”. While all successful entrepreneurs in her study did eventually perform this analysis, the majority of them said they did not worry about the competition until they got to the funding stage — “intrinsically” knowing that if their idea could work, it was just a matter of how, and the business plan could come later.

Finally, when it came to pragmatic, implementation analysis, the study found that –perhaps unsurprisingly– the causal reasoners were hesitant and saw only limited potential of the product at study. Entrepreneurs on the other hand, immediately jumped to alternative uses and paths for the product, saying that even if the initial launch was weak, that other profitable spinoffs existed.

However, my original question remains: if you took those effectual reasoning entrepreneurs and put them on the other side of the table and now they were the ones to decide who to fund, which style would they choose?