Today we’re diving into the concept of FOMO (Fear of Missing Out), a powerful driving force for early-stage investors. What does it mean, and why can it have such a significant impact on an investor's decisions?
One memorable remark from my friend, investor Matt Mazzeo sums it up neatly:
An Insight into FOMO and Its Impact on Investors
Investors may claim they aren't influenced by FOMO or herd mentality, but the truth is they're human, and FOMO affects even the most elite investors.
Investing at the early stage isn't an exact science. There's no definitive set of data points that can predict success. Instead, it's an art, a form of reading the tea leaves where signals and credibility have an outsized impact.
One critical signal that catches a VC’S attention is the interest from other investors. It’s simple, but powerful- investors find comfort in knowing others are intrigued by the same opportunity. This is why I emphasize how crucial it is to find your first believer or “lead domino,” the first person to write you a check (even if it’s a small one).
The Hit-driven Nature of Venture Capital
The most successful venture capital firms thrive on grand-slam home-runs, not singles and doubles. Being the first investors in outliers like Facebook, Amazon, and Coinbase drive mammoth returns and establish generational firms.
No one wants to miss out on the opportunity that returns 1000x of their capital. And if you do score that one huge deal, it can potentially make your career- you’ll be regarded as someone with the golden touch and it colors all the opportunities you’ll have afterwards. You want the investor thinking, "What if I'm missing something? What if this founder does it? Will this be the opportunity that drives enormous returns for my fund"?”
How to Harness the Power of FOMO
Be able to answer, “How Will This be A Colossal Business?”
Sharpen your storytelling and narrative. The more convincing you are about your ability to create a massive company, the more likely you are to amplify the fear of missing out on what could be a huge hit.
Share updates that signal interest from other potential investors. Receiving small checks, hiring talent, signing new deals, securing big partnerships, etc. can all signal interest from other investors and positive traction for your company. These subtle messages can induce FOMO in prospective investors.
Run a Process for your Fundraise:
By packing your calendar full of meetings (Calendar Density) in a short, defined period, you create natural barriers to your time that stop you from relying on any single investor and suggest that multiple investors are interested in you.
For example, you won’t be able allow your meeting with Investor A to run long if you have to prepare for Investor B right after - and subtly letting Investor A know you can’t move things around for them will communicate they’re not the only ones competing for your opportunity.
Additionally, give deadlines when appropriate and maintain transparency about your expectations- this suggests that you’re a founder with options.
Once you have multiple investors demonstrating interest (not that you needed validation, but in this case it REALLY helps 😜), it's time to circle back to everyone you initially met- even those that 'passed for now,' haven't responded yet, or are dragging their feet. You might say something like, “We have 10 firms going into diligence. If you want to be part of the process, let me know and I can get you caught up.” Every warm body is an opportunity to create more competition and options.
Investor FOMO is a potent tool in your fund-raising arsenal. Recognize it, understand it, and harness it to supercharge your fundraise.