How to Use Psychology to Get Investors to Close When You Want Them to

How to Use Psychology to Get Investors to Close When You Want Them to

Deadlines can trigger FOMO and FOMO can trigger signing the papers.

The night before Demo Day, my co-founder and I were sitting in a drab hotel room next to the Computer History Museum in Mountain View, Calif. Deciding that the extra precious minutes to practice our three-minute pitch for the next day justified springing for the cost of the hotel, my co-founder and I carved out five hours to fine-tune a pitch that had gone through at least 20 revisions and was about to go through at least 40 more.

The only catch was that we kept getting phone calls from investors throughout the night and into the next morning.

“I know we met two weeks ago, and I was dragging my feet, but I want to commit now,” said one.

“Look, you may not have any more room, but I want to get in at this valuation right now,” said another.

This continued as my co-founder and I closed several hundred thousand dollars’ worth of capital within several hours. All the while, we kept asking, “Why?” Why, after we had met with these angels and firms for the past six weeks, were so many committing the night before Demo Day?

We had struggled for weeks with cash flow, attempting to get investors to commit when it was good for the business. We had failed repeatedly; now, they were suddenly interested — so eager to commit at 1:00 a.m.?

It turned out we were bumping up against a major third party-verified deadline.

Something neither investors nor entrepreneurs can control

The third party-verified deadline is one of the easiest ways to get investors to close on your schedule. Essentially, it’s an event-, holiday- or calendar-based function that the entrepreneurs themselves cannot control but must adhere to for business reasons.

This deadline is a literal “line in the sand” that can help you force a close at a specific valuation because investors will know you cannot give them more time or make extensions.

After our Demo Day presentation, the company’s valuation was going up by more than 40 percent. Many investors waited until the last possible minute to get in because they knew we couldn’t extend the deadline set by our accelerator program.

Conversely, it’s been my experience that if we had just told investors our closing deadline was at the end of the week or month — arbitrarily set by us — they would continue to drag their feet because we’d set the deadline.

How to create your own third party-verified deadline

Closing investors on your timeline is a critical skill for any entrepreneur. After all, as founder, you know what’s best for your business and have dedicated plans for hiring, expansion and cash flow that require capital commitments at specific junctures.

Unfortunately, many investors don’t think that way. Their currency is time. The more time they have to assess the business and ask the opinions of potential customers, partners and other investors, the more power they have in terms of doing their due diligence and driving a better deal.

And while not everyone has an accelerator program-sponsored Demo Day to turn the tide, there are some key ways you can create your own third party-verified deadline to turn the tables and close investors when it matters most to your business.

Step 1: Create FOMO by stacking meetings.

The first step is to create investor FOMO –fear of missing out — by planning to engage as many investors as possible in a short period of time. Rather than meet with a handful of investors in the weeks and months before you wish to close, set a hard timeline to meet with as many as possible in the two weeks before you wish to close.

Investors gossip more than Regina George in “Mean Girls.” By stacking meetings, you’re more likely to be at the top of investors’ minds as they circle like sharks.

Step 2: Pick a third party-verified date.

Once you have your meetings planned, pick a date set by a third party. No Demo Day? No problem!

A tax filing deadline works just fine because it’s often the case that a company may not be able to accept capital after that date has passed. National holidays also work extremely well.

Additionally, the last day of the year is also a good option. Once you have your date, tell this to investors — and stick to it.

Step 3: Gamify with an incentive.

To get investors to close on your timeline, they need to be provided an incentive that’s at immediate risk of loss.

Operating on the concept of loss prevention, investors will often accelerate their exposure and their review of your business to come to a decision much faster than normal. Good examples of this include a lower or more attractive valuation that’s at immediate risk of increase or the hiring of critical staff.

Remember, the third party-verified deadline only works if the date and time are set by a third party — not you. There are natural and often convenient real-world cutoff points that you can leverage simply by integrating them into your planning. Don’t waste your time by creating your own deadlines that investors have no good reason to follow.


Read the full article on Entrepreneur.com:
How to Use Psychology to Get Investors to Close When You Want Them to

Deadlines can trigger FOMO and FOMO can trigger signing the papers.
Source: Entrepreneur.com By Alex Gold