With more early-stage startups competing for the attention and financial backing of venture capitalists, founders need to understand what motivates investors. One powerful motivator is the fear that they could miss out on the next billion-dollar opportunity. Rune Hauge, co-founder and CEO of Mentorcam, puts forth steps founders can take to create FOMO and use it to their advantage when fundraising.Â
Tech giants have been shedding workers at an astonishing rateOpens a new window , and it won’t be long until those out of a job will number more than 200,000. But make no mistake: we’re not about to see 200,000 talented people exiting the workforce. The layoffs by Amazon, Salesforce, Google and Meta won’t lead to thousands pivoting out of the tech industry or joining the gig economy as Lyft drivers.
What we will see instead is the creation of hundreds of new tech startups. We will see a massive influx of brand-new company founders, some of them experienced in scaling early-stage startups and others new to the process.
They will all compete to raise funding from the same group of investors, many of whom are reluctant to back early-stage founders with lofty aspirations and few proof points.
Seed-stage companies will raise funding this year, but that doesn’t mean it will be easy. The field will be crowded and noisy, and standing apart from the herd will be critical.
Over the past year, I have personally mentored dozens of startup foundersâ€”and my mentors on Mentorcam have worked with hundredsâ€”on fundraising. It’s a process that takes time and effort, and it’s never too early to put the wheels in motion. And it never hurts to leverage one of the most powerful impulses among investors: the fear of missing out.
No investor wants to pass on the next Figma, Instacart, or Discord â€“ especially if their peers are profiting from them. This fear of missing outâ€“or FOMOâ€“is a powerful incentive. Founders must learn to create and use it to their advantage when fundraising. Here is a basic playbook:Â
- Build a list of at least 50 investors: This is more painstaking than it sounds because they need to be the right investors. Look at investors who have backed startups in the same space you operate in (but not your competitors). No amount of research is too much. This may be a combination of angel investors, family offices, and VC firms. Use Crunchbase, LinkedIn and other resources to put together your list.
- Get in front of these investors: This doesn’t mean cold-emailing 50+ firms hoping to get meetings (although this can also get results). It means getting an introduction to investors, preferably from founders of companies they have already invested in. While an introduction is more time-consuming to obtain, it reduces friction and decreases risk on the investor side because of a common connection. It also shows that you are willing to hustle to get in front of a particular investor.Â
Many founders have been in your shoes and are usually happy to help their investors create deal flow, so asking for an introduction is fair game. That said, a quick call with that founder to establish rapport is usually helpful so they actually know you. Make your initial outreach genuine, personalized, and to the point. Be polite, introduce your company and ask for feedback on the target investor. This is a matter of putting in the necessary hours to build relationships and networks.Â
- Schedule meetings with multiple investors around the same time: After you get introductions, schedule your investor meetings as closely together as possible. This gives you leverage because you’re able to tell investors that you are talking to others (just don’t tell one investor who the other investors are at this point), as well as confidence and credibility. You are also creating a game of musical chairs by talking to more investors that you can fit into your round. Investors talk to each other, and this is the way to generate buzz and a sense of urgency.
- Start small: If you think you need to raise $2 million, don’t ask for $2 million when you haven’t raised a penny. See if you can get a commitment for a sum like $100,000 to start. Treat the first meeting with an investor as exploratory to assess fit and determine interest. Ask investors what their â€œtypical ticket sizeâ€ is for a company at your stage. Then ask if they would like you to keep them posted as your round progresses.
This way, you can mention at your next meeting that other investors are interested and, when you get enough confirmed interest, that your round most likely will be oversubscribed. Confirmed investor interest goes a long way in creating FOMO.
- Set a timeline for each batch of investors: Once you have confirmed investor interest, it’s time to get commitments and fill up the round. It’s important to have a timeline for closing the round that you communicate to investors. You can always extend this timeline if necessary, but this is a way to get interested investors to move, and NO is always better than a MAYBE. If you have enough confirmed interest to start this phase (i.e., more than you are looking to raise), it’s time to get back to the investors you spoke to and share that the round is closing fast because you have an overwhelming interest.
Becoming Desirable to Investors
Fundraising is like the dating scene in many ways. Focusing less on the outcome and more on the interaction while simultaneously appearing unconcerned and being pursued by othersÂ makes you seem more desirable.Â
Funding is available, even in a macroeconomic climate as difficult and unpredictable as today’s. But founders must understand the basic concepts of fundraising, including how to create FOMO. Investors are slower to open their wallets today than they were just a year ago, so it’s essential to stand apart from the pack.
Do you think tapping into the fear of missing out could be an effective tool to raise more funds? Share your thoughts on FacebookOpens a new window , TwitterOpens a new window , and LinkedInOpens a new window .