The Psychology of Investors - Why Your Lead Unlocks the Rest of Your Round

One of the core characteristics of the likelihood of a round being raised is whether or not a company has a lead investor.

The size of the commitment doesn’t really matter, the lead themselves don’t really matter, but the optics that “someone has already went out and committed to this” is what does matter.

Investor networks are usually a very tight nit circle. All of the reputable funds know each other, or know someone who knows each other.

The reason why the industry average for seed and series A rounds being funded is right around 33% is because no investor wants to be the first to commit.

It is a human instinct thing to not be the “first” to do something. It is uncomfortable, scary. We naturally like to make decisions with the group.

“Nobody else has shown any interest in this so why should I?”

It is a herd mentality.

But if you can get 1 person / group to commit, this entire mentality flips.

“XYZ has already committed to this, I really don’t want to miss out.”

I’ve mentioned this idea before but early-stage investing is just as much about selling yourself as a founder and your team as it is your product.

You want people to bet on you. Your success. Your vision. This is what allows you to help find your lead and what gets the investor momentum to carry on afterwards.

As soon as you have one person or fund committed to you, that should be your biggest point of leverage when you’re building your investor pipeline.

“We already have commitments from XYZ group and are speaking to a few more similar funds.”

Make people feel like they’re missing out.

With the raises that we help with, we’re always looking for new narratives in the stories we push so that we can position our clients as strong as possible.

This is what gets groups to make decisions on you, and make them as fast as possible, so you’re not sitting in follow-up purgatory.

Focus on getting a lead investor first —> everything else for follow-ons should be positioning the raise as FOMO for why they don’t want to miss this opportunity.

Let me know if you have any questions about this for your specific raise and I’m happy to Answer.

Have a great day!

Ryan
Breakout Capital Group