editione1.1.3Updated September 13, 2022
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important Having more interest in your company than you can possibly accommodate is a highly valuable situation for any founder. Generating more demand for your round than you have room for—that is, creating a sense of scarcity—helps you gain leverage by increasing the urgency with which investors approach your company. When you decide to raise a round is crucial, and the way you schedule meetings within that round can greatly affect whether investment in your company is seen as scarce—something investors will fight to be part of.
FOMO may be an obnoxious acronym, but it’s a very real thing. The fear of missing out influences how investors think about opportunities. When an investor hears about a company that got funded in a space they’re interested in, but didn’t know the company existed before hearing about the deal, it’s immensely frustrating. Given the power laws of venture capital, investors really need to make sure they don’t miss out on a good investment. When they miss a deal, it can make the investor question their skills. This desire to see all relevant deals, even if only to pass on most of them, comes partly from FOMO. For this reason, investors are said to have a herd mentality. While FOMO isn’t a good reason for an investor to invest in a company, it influences investors when a highly competitive deal—one in which many investors are interested in investing—comes along.
Investors’ not-so-well-kept secret is that it’s really hard to pick the winners early on, which leads to significant fear of missing out. Venture capital depends completely on outliers with very high returns. This means good deals in venture capital are scarce. The realities of FOMO should help motivate you to reach out to any and all investors who could realistically invest in your company (and who you would be excited to work with). Your goal is to convince investors that your company is one of these scarce good deals.
Parallel fundraising is the strategy of setting up meetings with investors at different firms within the same time period. Parallel fundraising is designed to tilt the fundraising process in favor of founders by creating a sense of scarcity and forcing investors to make decisions without input from or collaboration with other investors. By contrast, serial fundraising, in which founders set up meetings with different firms during different periods, gives the advantage to investors by allowing them to set the schedule and enabling them to talk to each other about whether a company will make a good investment. Aaron Harris of Y Combinator coined the term in his 2018 post about process and leverage.
Founders who fundraise serially meet with investors whenever they can. They may take first meetings with two different investors four weeks apart. In practice, parallel fundraising means a founder sets up all first meetings with every firm they want to meet within the same one- to two-week period. Second meetings happen in week two or three, partner meetings in week three or four, and negotiations happen in week four or five.
In this way, parallel fundraising creates a sense of urgency among VCs to invest in your company. As Harris describes, parallel fundraising means investors won’t have the advantage of knowing which other investors are interested in your company, as serial fundraising allows, so they have no way of knowing whether or not a company is hot. Their safer bet, given FOMO, is to get in now, just in case the company turns out to be on fire. With parallel fundraising, every investor you meet with has the same information about you and your company—they can’t share it with each other or with investors you have not yet met with or spoken to directly, and that makes the information scarce. In parallel fundraising, two investors who know each other met the founder at the same time. In serial fundraising, the investor who meets the founder after the first investor passed has to wonder why someone else passed on the company. If one investor has three meetings worth of information, and another investor finds out that they said no, they think, “Well, maybe I can skip having another meeting with this person.” With parallel fundraising, you have more shots on goal.
important We strongly recommend every founder read Harris’s post when planning out a fundraise. Harris differentiates between “pre-fundraising” meetings, where founders are exploring a group of investors they might want to work with, and official fundraising meetings. While meeting informally with investors as you’re building your target list can be a wise use of your time, we recommend considering all meetings with investors, whether or not you are ready to take on investment, as pitch meetings of one degree or another. In any context, you are being evaluated.
The easiest way to raise money is to build something that investors use.Rahul Vohra, founder and CEO, Superhuman*
controversy Some founders recommend only meeting informally with investors, never “officially” raising or trying to set pitch meetings. The theory goes that if you’re building an exceptional product and spending time on traction and users, investors will come to you. If you’re really lucky, VCs themselves might be some of those early users, as in the case of Superhuman founder Rahul Vohra, who has described his raising-without-raising strategy with The Business of Software (quoted above) and on audioThe 20-Minute VC. This strategy can work if you’re a really hot commodity. But that’s not likely to be the case with your first company, and unless you’re an ex-employee of Uber or Airbnb catered to by firms run by other alumnae, it’ll be hard for any founder to raise a seed round without actively seeking investment.*