"Fat" investment hinders a good startup
At the moment, an oversupply of money is beginning to be felt in the American venture capital market. A promising Internet startup can easily get an investment. But is it necessary to do this? How much to attract investment? Would it be right to take as much money as possible, that is, to the maximum? Venture capitalist Karl Shawalter believes that this is wrong.
Karl Shawalter is one of the leaders of the Opus Capital venture fund, which invests in technology start-ups. In his article, he writes that the size of the investment must be precisely verified. If you invest in the development of too little money, even a promising business may wither at the very beginning of its development. But too large investments also harm the startup, because in this case the business model is being eroded, and company executives are beginning to react worse to market conditions. In other words, the “fat investment” worsens business agility.
For the founders of the company, a smaller amount of investment means maintaining more control over your startup, and subsequently - getting a fatter piece in the event of a possible sale of the business or IPO. Therefore, many entrepreneurs consciously limit the amount of funds raised.
On the other hand, reducing the size of investments at the same time reduces the potential for business development. How to find a middle ground?
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Most investors who invest in startups at an early stage of their development expect a return of investments of tenfold over four to six years . The smaller the investment, the lower the level of development of the company is sufficient to return the investor his investment in the required amount. It is not even necessary to sell a business or issue shares in order to make a profit.
Another argument against large investments: attracting finance from various funds usually requires the introduction of representatives of these funds to the company's board of directors. Sometimes management efficiency suffers because of this. As they say, seven nannies have a child without an eye.
Nowadays, a technology startup needs far less money to enter the market, because computers and other equipment have become cheaper, and thanks to the Internet and globalization, it has become possible to resort to outsourcing to reduce costs.
Generous financing is not the key to business success. In general, the best way to increase the efficiency of a company is to reduce its financing, to make managers consider every ruble their expenses. True, it is important not to overdo it.
Karl Shawalter is one of the leaders of the Opus Capital venture fund, which invests in technology start-ups. In his article, he writes that the size of the investment must be precisely verified. If you invest in the development of too little money, even a promising business may wither at the very beginning of its development. But too large investments also harm the startup, because in this case the business model is being eroded, and company executives are beginning to react worse to market conditions. In other words, the “fat investment” worsens business agility.
For the founders of the company, a smaller amount of investment means maintaining more control over your startup, and subsequently - getting a fatter piece in the event of a possible sale of the business or IPO. Therefore, many entrepreneurs consciously limit the amount of funds raised.
On the other hand, reducing the size of investments at the same time reduces the potential for business development. How to find a middle ground?
')
Most investors who invest in startups at an early stage of their development expect a return of investments of tenfold over four to six years . The smaller the investment, the lower the level of development of the company is sufficient to return the investor his investment in the required amount. It is not even necessary to sell a business or issue shares in order to make a profit.
Another argument against large investments: attracting finance from various funds usually requires the introduction of representatives of these funds to the company's board of directors. Sometimes management efficiency suffers because of this. As they say, seven nannies have a child without an eye.
Nowadays, a technology startup needs far less money to enter the market, because computers and other equipment have become cheaper, and thanks to the Internet and globalization, it has become possible to resort to outsourcing to reduce costs.
Generous financing is not the key to business success. In general, the best way to increase the efficiency of a company is to reduce its financing, to make managers consider every ruble their expenses. True, it is important not to overdo it.
Source: https://habr.com/ru/post/4519/
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