Investors Caught Between Two Fears

Why Raising Money Feels Strange

Your startup needs a seed round: a few hundred thousand to a few million dollars to build the company, what Graham calls phase 2. Paul Graham's 2013 essay on raising money covers exactly this stage.[[1]](https://paulgraham.com/fr.html)

He says fundraising is hard in two ways. One is like lifting a heavy weight. The other is like a puzzle, and his essay is a map for it.[[1]](https://paulgraham.com/fr.html)

Here, new founders cannot trust their instincts. His rule number zero: "these rules exist for a reason."[[1]](https://paulgraham.com/fr.html)

So what makes investors behave in such unintuitive ways? Two fears.

Squeezed From Two Sides

Graham says investors are "pinched between two kinds of fear." In plain words, they are afraid of two opposite mistakes at once.[[1]](https://paulgraham.com/fr.html)

Fear one: backing a startup that fizzles, meaning it fails quietly.

Fear two: missing a startup that takes off.

Notice that both walls press at the same time, so the investor cannot escape one fear without moving toward the other.

Both come from one fact: successful startups grow very fast.[[1]](https://paulgraham.com/fr.html) A winner grows so fast that missing it is costly.

An early startup is also hard to judge, so backing it is risky.

Which Fear Is Talking?

Picture a startup with three weeks of rising signups. It might become a big winner. It might fizzle.

The same investor worries about both: backing it and passing on it.

Their behavior shows which fear is winning right now. Patient waiting points to the fizzle fear. Sudden urgency points to the fear of missing out.

So what flips an investor from one fear to the other?

Wait, Then Stampede

Four investors all say "keep us posted." Thirty days pass. Nothing.

Every week of a young startup's life brings more information, so investors would like to wait. But if they wait too long, other investors might take the deal away. So they all wait as long as they can.[[1]](https://paulgraham.com/fr.html)

Then one respected investor commits. Within 72 hours, the other three ask for documents.

Why? Once someone acts, waiting means losing the deal. When some investors act, the rest have to.[[1]](https://paulgraham.com/fr.html)

Same company, same month. Only the active fear changed.

Silence Has Two Causes

An investor has gone quiet for weeks. Is that a slow yes? A final no? Usually neither.

Cause one: they may be waiting for more information about your company.

Cause two: deliberate stalling.

In another essay, Graham notes some investors stall when they know a founder needs money, because founders get more pliable as cash runs out.[[2]](https://paulgraham.com/ramenprofitable.html)

The next lesson covers how stalling works.

Reading Investors in Your Raise

Contrast two investors. A mediocre one strings an unpromising startup along for months. A reputable one gives a clear answer.[[1]](https://paulgraham.com/fr.html)

Why the difference? Good investors do not lead founders on, because their reputations are too valuable.[[1]](https://paulgraham.com/fr.html)

In your raise, treat "keep us posted" as waiting, not a yes. Expect the group to move once one respected investor commits.

That makes the first commitment the one that matters most.

An early-stage investor can fear both losing money on a startup that fizzles and missing a startup that takes off.

• True
• False

Answer: True

Both fears exist at the same time. Young startups are difficult to judge, but successful ones can grow very quickly, making both backing and passing on a startup feel risky.

Patient waiting points to fear of backing a _____, while sudden urgency points to fear of _____.

Answer: Patient waiting points to fear of backing a fizzle, while sudden urgency points to fear of missing out.

When investors wait patiently, they are trying to avoid backing a startup that fails quietly. When they become suddenly urgent, they fear losing access to a startup that could become a major winner.

An investor has been quiet for several weeks during your raise. What is the most likely interpretation?

• The investor has definitely rejected the company
• The investor is probably waiting for more information
• The investor has definitely decided to invest
• The investor is required to wait until another investor commits

Answer: The investor is probably waiting for more information

Silence usually means the investor is waiting for more information. It can also reflect deliberate stalling, but it should not be treated as a clear yes or no.