Nir’s Note: This guest post is written by Michael Simpson. Michael is the co-author of The Secret of Raising Money, which he wrote with Seth Goldstein.
Raising money for a startup is like sex. The more unattainable you seem, the better your chances of getting lucky. Also, the more interest you receive from others, the more appealing you will become to everyone else.
This essay discusses two psychological principles at work in an entrepreneur’s fundraising efforts: social proof and scarcity. Nir has discussed both in previous blog posts regarding product design. In this article, I’ll take you through the mechanics of each, and show you how entrepreneurs use these tools to close their rounds.
“If you’re walking down the street and everyone is looking up at the sky, you look up at the sky.” -Babak Nivi, AngelList