Stop with the Fake FOMO
FOMO — the source of and solution to many a founder’s fundraising woes. Over the years, countless stories have been written about founders using FOMO to catalyze a fundraising process to stratospheric heights. What too many founders misunderstand is that FOMO only works when applied to a well-run fundraising process. It’s not a replacement for actual investor interest.
And it’s not something you can fake.
Here are 5 mistakes founders make when pushing fake FOMO:
1. Pushing FOMO Too Early
Pushing FOMO too early in a fundraising process is like asking someone out on a date and prefixing it with “by the way, three other people are already considering proposing to me.” Even if it’s true, it’s gross.
Here are some of the ways I’ve seen this play out:
FOMO Before the First Date
You secure a warm introduction to an investor. The next step is to schedule an initial call. Unfortunately, some founders can’t resist the urge to throw in a bit of FOMO in that very first interaction. Here’s one I saw recently:
Great to connect. Here’s my calendly to book a time that works for you. Our round is moving quickly, with a good number of funds in due diligence right now. I'd be happy to discuss more over a conversation.
I’m sure this founder thought that they were adding a subtle bit of urgency to the interaction. Instead, the reaction was an unnecessary eye roll.
FOMO During the First Date
I recently had a first call with a founder who I had heard good things about. At the end of our introduction, I asked if he had any questions for me (reminder: this is the opportunity for you to ask an investor how their process works, what next steps are and gauge their initial reaction). Instead of asking me any questions, he proceeded to state that his process was going incredibly fast, he felt that he had shared everything necessary in order for me to make an investment decision, and he expected to receive a term sheet from me by the end of the week.
The Ticking Timebomb
Another common tactic used to push fake FOMO is the “ticking timebomb”. In this approach, founders send successive emails urging investors that time is almost up. While investors genuinely want to be updated if a round is progressing quickly, it’s easy to go overboard (particularly if the progress isn’t real).
I recently received a series of cold emails from a founder who wanted to pitch me (yes, I read cold emails!). This particular founder combined FOMO “before the first date” with a ticking timebomb, but couldn’t keep his numbers straight:
March 3:
Our funding round is almost full (~80%). Therefore, we strongly recommend strategic investors to get in now, or the opportunity won’t be there.
March 18:
I'd love to have Panache in our investment round but the window is closing as we are beyond 70% of the round and current investors are increasing the size of their participation.
The “No Time for Questions” Approach
A tactic that was common in the heyday of 2020-21 was for founders to limit the number of responses they would provide to investor diligence requests. When a fundraising round is legitimately competitive, this can make a lot of sense. But it only works in truly hot deals.
I’ve seen many founders who clearly read about this approach online, but failed to understand that in most cases it doesn’t work. Why? Because most VCs won’t make an investment until they get all of their questions answered.
One company I met last year tried to do this. The first meeting got me interested, so I asked to schedule a follow-up meeting to dig into a couple of topics that were important to me. Instead of agreeing to another meeting, the founder sent me this email:
We're no longer taking meetings really, just closing the loop with a few folks from last week. Back to building + looking for a first customer. Is there something I can answer for you over email?
Instead of continuing to dig in, I sent them this response:
In that case, I’ll pass.
Good luck!
This particular company completely failed to raise their round, in large part because they tried this tactic with every VC they spoke to and 100% of investors disengaged.
2. Not Understanding How VCs Make Decisions
When you project FOMO too early in the process, you’re highlighting to investors that you don’t understand how they make decisions.
Every VC has a process that they follow internally when making investment decisions. While most firms have the ability to accelerate that process, no good investor will skip steps in their diligence process. Understanding where a given investor is in their process and what steps remain is critical to knowing whether or not FOMO will help or hurt you.
If you signal too early that you’re close to the finish line, investors who are near the beginning of their process will simply opt out, for fear of not having enough time to complete their process (they would rather use their time and resources towards a deal they’re likely to win). That’s why it’s so important to ask every investor in your first meeting how they make decisions and what needs to be true in order for them to reach conviction.
3. Using Hyperbole Instead of Hard Numbers
Another dead giveaway of fake FOMO is when founders use subjective hyperbole instead of hard numbers. It’s the same effect as when a pitch deck says “we’re growing fast!” but doesn’t show any graphs or metrics.
The first example above, in which the founder pushed FOMO before the first date, captures this:
Our round is moving quickly, with a good number of funds in due diligence right now.
Even if it’s true, the lack of concrete numbers raises doubts. Sharing hard numbers without adjectives or exaggerations is far more effective than the most eloquent hyperbole:
We’re in week 2 of our fundraising process and are in second meetings with a dozen firms.
7 firms are already in our data room.
We’re currently in 3rd and 4th meetings with a handful of firms.
We have received 3 term sheets and are entertaining additional offers until 5pm on Friday.
We are currently raising our pre-seed round via SAFE ($6M valuation cap and 20% discount). So far, $500K has been committed and I am looking to raise another $250K.
Each of these statements implies urgency by the very nature of their facts, without resorting to artificially pushing urgency through over-the-top language.
4. Trying to predict the future
Many founders feel the need to over-explain things. A common example of this in fundraising occurs when founders want to signal that term sheets are close, but try to predict the future instead of sticking to the facts:
We’re expecting term sheets by…
or
We’re almost at term sheets.
Here’s the thing: you either have a term sheet or you don’t. The moment you try to predict when a term sheet might land, you open yourself up to the collapse of your entire fundraising process if one doesn’t materialize.
Unless you’re near-certain, avoid the urge to say “we’re hoping for term sheets by Friday” and stick to the facts. If you tell an investor that “we’re in 3rd and 4th meetings with multiple firms,” “we’re nearing the end of our process,” etc., I promise that they know what that means.
5. Not Reading the Room
Today’s fundraising environment is not what it was two years ago. VCs aren’t in a rush (even when it comes to generative AI). Moreover, we generally know the pace at which our peers are moving. If you try to project a level of FOMO that doesn’t match what we know to be happening in the industry, you’re likely to fail.
The sky is falling!
How to do it right
Arjun Dev Arora is a former founder and VC who advises startups around the world on effective fundraising. According to Arjun, effective FOMO is created by tactfully letting investors know how the round is progressing. You want to let investors know what’s happening without being over-the-top. This means:
Being honest and truthful. FOMO is built on a foundation of fact.
Being concrete. Use hard numbers and dates instead of subjective hyperbole.
Being subtle. Lead investors down the path but trust that they’ll reach the right conclusion.
Remember, investors receive hundreds of emails from founders each month. I promise that it’s glaringly obvious when founders try to push fake FOMO. You might think you’re being smart, but the VC on the other end is likely rolling their eyes.
And deleting your email.