When Founders Persuade

Persuasion is like physics; we don’t have to know why gravity works in order to experience its effects. Much the same way as founders putting all sorts of businessy garbage in their pitch decks is a-ok — everything is well as long as it works.

It’s still better to know why something works though, on the off chance of the thing changing, only to produce the exact opposite effect. As one example, fear of missing out, or FOMO for short, is one that founders notoriously try to exploit, but get wrong almost all the time.

When founders write pitch decks, they essentially use well known behavioral biases, say:

  • A founder might send an email to an angel saying that the investment round is closing (FOMO!), and so if the investor doesn’t decide within a week, they are missing out on the deal. Which is all well and good, but most rounds never reeaally close, so the same investor might see the same opportunity a half a year later.

  • Anchoring is much easier to deploy. Founders have to know their competition in and out: which similar companies secured investment, by whom, and on what valuation? Including some of the more flattering metrics in a pitch is a must. Startups can use a comparable company with a high valuation to make their cheaper offering sound like a “discount,” or use a higher valuation to signal a more “premium” product.

  • Familiarity bias might work if the investor shares similarities with the founder or with the company in some way. Are the parties from the same hometown? Are the companies based in the same state? Might be worth pointing those similarities out.

  • Venture tends to work like an assembly line in which Series A and later-stage investors are looking at companies that angels have invested in, and angels are looking at whether a startup is coming from a well-known incubator or not. As a new startup, getting incubators is pretty easy compared to getting seed investment, so first-time founders should consider this option.

  • Press releases and social following can be important factors. A somewhat related 2006 study found that individual investors are more likely to buy stocks that catch their attention. Any advertiser could tell you: People buy what they remember.

I know, I know, I haven’t said anything entirely new here, which is kind of the point. This is exactly how most founders operate today: they use anchors from competitor data, their footer says “built with <3 from wherever the hell our favorite investor is from”, and put their achievements on LinkedIn. But isn’t it nice to know where all that comes from?