The Startup Fundraising Secret: How Hick’s Law Can Simplify Investor Decisions
by Abdelrhman Soliman, Investment Analyst & Startup Mentor at Multiples. | Originally published on Linkedin.
Guest post by Abdelrhman Soliman, Investment Analyst & Startup Mentor at Multiples. | Originally published on Linkedin.
In the high-stakes world of startup fundraising, clarity is critical. When pitching to investors, founders often feel compelled to share every detail of their business, showcase all possible growth avenues, or propose numerous investment options. However, this approach can overwhelm investors, leading to decision fatigue and, ultimately, rejection.
Hick’s Law—a principle of psychology—explains why too many choices lead to slower decisions and reduced action. Originating from experiments on human behavior, the law demonstrates that fewer, well-curated options lead to faster and more effective decision-making. This whitepaper examines how founders can leverage Hick’s Law to simplify the fundraising process, align investor focus, and drive results.
What is Hick’s Law?
Hick’s Law describes the relationship between the number of choices presented and the time required to make a decision. Simply put, as the number of options increases, the time to make a decision grows exponentially. Conversely, when options are limited, decisions are faster and more efficient.
Examples from Real Life
Restaurant Menus: Patrons take longer to order when faced with an extensive menu compared to a concise, well-curated one.
Retail Research: A study found that reducing the number of displayed shampoo options led to a 10% increase in sales.
Behavioral Experiment: Shoppers presented with 24 jam varieties stopped more frequently but purchased less compared to those offered only six varieties.
Application of Hick’s Law to Startup Fundraising
When pitching to investors, Hick’s Law applies directly. Too many options, scattered strategies, or vague milestones cause:
Decision Paralysis: Investors delay their decision or disengage entirely.
Perceived Lack of Focus: Overloading investors with ideas suggests the founder lacks clarity about the business’s direction.
Reduced Confidence: Investors may lose faith in the team’s ability to execute.
Key Takeaway
Strategies for Applying Hick’s Law in Startup Fundraising
a. Be Specific
Avoid presenting a vague or overly broad vision. Investors want to know:
What problem are you solving?
Who are your customers?
How does your solution work?
Tips
Articulate your business in a single, concise sentence (the "elevator pitch").
Provide a clear, prioritized roadmap with defined milestones.
Avoid introducing too many market opportunities or product variations at once.
b. Have Clear Milestones
Milestones give investors tangible points to evaluate your progress and potential. Examples include:
Launching a minimum viable product (MVP).
Securing a certain number of paying customers.
Achieving specific revenue goals.
Tips
Highlight 3-5 major milestones in your pitch deck.
Link funding requirements to specific milestone achievements.
c. Avoid Overloading Investors with Options
Many founders offer investors multiple investment scenarios, such as varied equity percentages, valuation caps, or convertible note terms. This creates confusion and delays decision-making.
Present a single, clear investment structure (e.g., $1M for 20% equity).
Justify your valuation with data and benchmarks.
If flexibility is required, limit options to two clear paths.
d. Know What You Are Doing (and Show It)
Confidence and clarity are critical in pitching. Investors must feel that you understand your market, customers, and business model.
Practice your pitch extensively to ensure clarity and confidence.
Use precise metrics to back up claims (e.g., TAM, CAC, LTV).
Anticipate and prepare for potential investor questions.
5. Actionable Tips for Founders
Streamline Your Pitch Deck
Keep it to 10-12 slides focused on the problem, solution, market, business model, and funding ask.
Avoid overloading slides with data or options.
Limit Investment Structures
Offer one clear deal structure unless asked for alternatives.
Prioritize and Sequence Ideas
If your business has multiple verticals, prioritize the most viable one.
Sequence additional ideas as future growth opportunities.
Emphasize Milestones
Define key achievements tied to funding.
Show how reaching milestones derisks the investment.
Practice Precision in Communication
Rehearse your pitch to ensure clarity and brevity.
Anticipate follow-up questions and prepare concise answers.
Hick’s Law teaches us that fewer, well-curated options lead to faster and better decisions. In startup fundraising, applying this principle can simplify the investor decision-making process, enhancing your chances of success. Founders should focus on clarity, specificity, and defined milestones to avoid overwhelming investors and signal strong leadership.
