Cold Email Psychology (what it is and how to use it)

Jason Yeh
April 7, 2022
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Fundraising

How much effort do you put into honing your craft?

For me, the answer is “a lot”. One way I do this is by following the writing of a lot of smart people in the startup and venture capital communities. It's especially helpful when they share unique insights around investing and fundraising.  Reading about that from other experts drives me to improve.  And if I improve, I'm able to help more founders get funded. 

What sets my work apart from my peers is my focus on unpacking investor psychology. If other experts even mention investor psychology, it’s usually as an afterthought. For me, it's a core part of my focus because solely teaching tactics is dangerous. 

A founder who only reads about tactics becomes a mindless robot. They can follow very specific steps that are effective in theory but struggle to adapt when encountering slight variations.

In my opinion, a strong grasp of investor psychology is the key to raising money. With it, founders can find creative solutions to fundraising challenges on their own.

A cold opportunity to go deep on investor psychology

Last week, I received a cold email soliciting investment. That in itself is not an unusual thing.  What stood out is that this cold email happened to catch my eye. It wasn’t successful in fully hooking me but the fact that it triggered my investor lizard brain was enough for me to make it the focus of this essay highlighting different aspects of investor psychology.

The Email (sanitized with identifying elements changed)

Subject: WinningCombo Investment Opportunity - $76M annual gross revenue + ~11m active users
Hello Jason, 
I'd like to extend you an invite to co-invest in our exceptional portfolio client, WinningCombo… alongside such notables as Ben Horowitz, Elon Musk, Paul Graham, Brandon Beck, Whitney Wolfe Herd, The Rock, and Jon Favreau.
As background—
• WinningCombo is a consumer platform where people connect with other consumers with similar interests to share buying recommendations and compete in puzzle style games.
• WinningCombo has generated $76M in gross revenue in 2021 and is EBITDA positive and has 11 million-plus monthly active users. 
• WinningCombo is being integrated with Oculus Rift as we speak in addition to tapping large B2B opportunities in the works with the likes of Tesla, Google, Conde Nast and others. 
• They're closing a strong Series A round and have room for an additional ~$300K - $2.5M. 
• Teaser — https://docsend.com/8jflksj3kg
I'd be happy to make an intro to WinningCombo Founder/CEO if you're interested to learn more.
Best,
Omar
--
Omar Bhanji // Managing Director, RaiseHouse
www.raisehouse.com // m: +1.310.237.6XY4
t: twitter.com/raisehouse // LinkedIn: bit.ly/lhf3kg
Stay tuned for my upcoming book, Raising Capital: The pursuit of excellence 

---

My reactions

I’m going to try something new. I’ll write my analysis but also share inner thoughts in [bracketed italics.] I think this will provide some cleaner insights.

Let's start with the fact that it was a cold email. Cold emails on their own are negative. My first reaction to any cold email is why did the person cold email me? [Why couldn't they get to me? Why couldn't they be introduced to me?] 

The Subject 

It screams investment banker but I opened it because there were big numbers that caught my eye and made me curious. [whoa. That’s a lot of revenue for a company I’ve never heard of… wonder what they do…]

This led me to look at the email address again – omar@raisehouse.com.  I didn’t recognize the name or domain at all and when I went to the website, it was kind of strange. There was nothing about it that made me feel like it was credible. 

The Email Body

The email itself was a form email with zero personalization. It didn’t take too much reading to know it was sent to a ton of people. That made me even more skeptical. [ugh. Definitely a form email. I wonder how they got my email and how many this went to]

By this point, I was experiencing a common feeling investors look out for. There is an anxiety investors get when they sense a bad deal, and it takes far fewer negative signals than this to trigger.  That feeling hits an investor in the form of this question - “why am I getting this opportunity?”  Investors always have to believe there is a good reason why a good deal has made it to them.  If there isn’t a good reason, the suspicion hits that this must be a bad deal. 

[why the heck am I getting this? There’s gotta be some hair on this deal.  If they have that much revenue and users, they shouldn’t have any problems raising money. Is the revenue real? Why on earth do they need a firm to be offering the investment to complete internet strangers??]

Even with this skepticism washing over me, I continued because there were additional elements that piqued my interest. 

  • The opening section was quick to establish credibility via current big name investors. [jeez. Those aren’t the type of investors that get sucked into hype deals…and really diverse backgrounds. Interesting…Still sketch, but I guess I need to figure out what this company does. I’ll keep reading]
  • The background bullet points are simple and organized. Made it easy to see the numbers quite quickly and they were impressive [Wow. That is a big  business. And EBITDA positive? Is this a joke? Seriously, why haven’t I heard of this company. I need to look this up on Crunchbase]
  • Then they list out big company partners.  Again, really strong credibility. [Huh. Also working with big companies.  Actually, the wording makes it seem like they’re not definitely working with them but still… enough to risk listing the companies] 
  • In the last bullet they talk about the deal dynamics.  “a strong Series A round and have room for an additional ~$300K - $2.5M.” [if the Series A is really that strong…WHY DO I HAVE A CHANCE TO INVEST?? And that’s a weird range of availability… so confused]

Finally, they included a link to the deck.  Getting to that point was a rollercoaster of positive and negative signals but I had to check it out at least to satisfy my curiosity…and honestly, the deck was intriguing.  Unfortunately for the company, the negative signals tainted my perception of the story and I didn’t end up responding to the email.  

Who knows… if I were an active investor, would I have responded?  Maybe.  If this cold email hit someone who knew the company or the space better would they have gotten over the negative signals to engage? Maybe.

My big takeaways

Cold emails are negative, but there are ways to open eyes and catch attention. If you can answer the question of “why am I getting this” and pique someone’s interest quickly, you still have a shot.  And as this email showed, even with some negative signals, there are ways to inject intrigue into a cold outreach that might drive an investor to engage. 

There's a lot to be taken away from the breakdown of this cold email, not only as a way to better structure your own cold emails, but to better understand investor psychology.

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