The Impact of Emotion, Stress, and Impulsivity on Founder Performance

Investment decisions are often driven by performance related data and analytics, but what about the human element? What about the emotional, stressful, and impulsive side of a founder’s decision-making process? This is an important factor to consider when making investment decisions as it can have a major impact on the outcome. Here we will explore how emotions, stress, and impulsivity can affect a founder’s decision-making process and what investors need to be aware of. 

It’s no secret that emotions play a role in decision-making. It is human nature to consider feelings as well as logic when making decisions. Individuals are more likely to make risky decisions when they’re feeling positive emotions such as joy or excitement, negative emotions like fear or sadness can lead to more conservative decision-making. As an investor, it’s important to understand how your founders emotions can influence their decisions. 

Emotional Relatedness

Empathy is linked to an individual’s emotional responsiveness to the emotional experiences of another. It is a key dimension in social competence and crucial in determining a person’s social functioning in both interpersonal and work domains. It plays a critical role in controlling antisocial behaviours (e.g., aggression) and fostering prosocial behaviours (e.g. being helpful and developing trusting relationships which endure).

Emotional Reactivity

Largely, emotional reactivity is caused by a lack of self-awareness and emotional understanding of a situation. It is driven by a gap in emotional and behavioural dysregulation which can often be bridged by psychological support that identifies ‘blind spots’ such as a lack of social and emotional skills, poor self-image, and esteem. 

Emotional reactivity left unchecked can lead to aggressive behaviour, bullying and burnout’ for the perpetrator and the recipients, and is highly correlated with a lack of adaptability to change. 

Stress: Triggers and Recovery

In addition to emotion, stress also plays a role in decision making. High-stress situations can cause people to become impulsive and act without thinking through all the consequences of their actions. This is especially true for entrepreneurs who are prone to taking risks in order to make their businesses successful. It’s important for investors to be aware of how stress can impact their founders’ decision making process so they can help them find ways to manage stress effectively. 

Understanding the triggers of stress in founders at the earliest stage can have a huge impact on any investment decision. In-depth psychological screening will identify known and potential triggers which can re-activate trauma, cause fear, and evoke anger and aggression towards others. 

Triggers can lead to challenging behaviour in the workplace

How individuals recover from adversity and stressful situations is related to their resilience. Ergo, building resilience for individuals in high risk roles is paramount if they are to stay effective. Stress is mental strain experienced in difficult circumstances. Chronic stress is associated with anxiety and depression and a lack of emotional and behavioural control. 

Under stress inducing circumstances, individuals lack reflective functioning and react rather than respond to external stimuli. Stress depletes the parasympathetic nervous system (rest and digest) and drives the sympathetic nervous system (fight, flight, and freeze). The stress hormone, cortisol, affects cognitive functioning and can cause risky decision making, particularly in males.

It is essential for investors to understand how emotion, stress, impulsivity and bias might be affecting a founder’s ability to perform. Through psychological vetting it is possible to establish an understanding of the exposure and risk profile of a founder to these factors, leaving investors better equipped with the knowledge necessary to make eclectically informed investment decisions.

 

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