Does pecking order affect your ability to raise funding?

I am often asked to help startups fundraise for their ideas; typically early stage ones that are raising Seed & Series A. In this situation, I get to observe the dynamics of the meeting and “predict” our next steps because I am rarely the one presenting. I recently had some additional thoughts regarding this process which stemmed from reading the book “The Secret Life of Pronouns: What Our Words Say About Us.” The book came highly recommended, and the author, James W. Pennebaker is a psychology professor at UT, so I figured it would be a good read.

What I found especially intriguing was Pennebaker’s analysis in the chapter titled Social Relationships and Emotions: Pronouns, Articles, Emotion Words. For those of you who may not have read it, here’s a brief summary:

  • Those who have more power/higher status use more plural first person pronouns (we, us, etc.) because it can subconsciously assert dominance over a group of people, establishing not only that everyone is grouped together, but also that the speaker’s concern is for the group, rather than themselves.
  • On the other hand, use (and overuse) of the pronoun I can reflect self-consciousness, depression, or self-involved thinking. This can explain why low-status individuals use I more often than high-status individuals, because they aren’t responsible for people other than themselves, or possibly because using broader first person pronouns like we can threaten what power they do have.

When strangers meet for the first time in a professional environment, Pennebaker says that an informal pecking order, or hierarchy, is established among colleagues. I have found that this is especially evident in a first time meeting with venture capitalists and angel investors. These meeting always start with the investor’s introduction:

“I’m Joe/Jane Partner and have been running this firm for 8 years. Prior to that I started and successfully sold three companies providing my investors with returns in excess of 12X their money. Now we invest some of that money along with my own funds. We have had a few successful exits; you may have heard of…”

Then it is the entrepreneur’s turn:

“My name is Steve/Stephanie Entrepreneur. I graduated from University and started working for… I always wanted to start my own company and am excited to be here to share what we are doing.”

With this, the pecking order has been established:

  1. Investor with successful track record
  2. First time entrepreneur

My argument, after reading “The Secret Life of Pronouns” and reflecting on the 100 or so investor meetings I have participated in where such a pecking order is established, is this:

To successfully raise funding from an investor, you must find a way to place yourself at the top of the pecking order.

We have all heard of entrepreneurs who raise a $30M Series A. No product, no customers, nothing but a team, market opportunity, and idea. I have not been able to witness such a meeting, but I can read between the lines. These are typically second or third time entrepreneurs, and the investor is someone who made a 10x to 20x return on the entrepreneur’s last startup. Such returns are not typical and will flip the pecking order in most situations.

A first time entrepreneur needs to identify a market dynamic that the investor has not, develop a product that leverages the market dynamic, and show atypical traction in the market. Someone like Joe/Jane Partner who has operational experience is not interested in an exciting product with zero sales.They know how hard it is to launch and sell a new product. But what if Joe/Jane Partner has never seen user acquisition growth greater than 300% per month (in either their company or their investments)? You have user acquisition at 500% – you have just flipped the pecking order.

So find that metric, feature, or lead customer that will define your startup and increase your status. Then find an investor who will be impressed.

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