A non-obvious fact about investors...
A non-obvious fact about investors...
If you have investors, you need to know that they want you to run out of money
(not talking family and friends, I mean serious angel investors or VCs)
Why?
Well if you're not doing amazingly well, you're not going to factor in to their returns. So they want to stop having you worry/think about you ASAP.
And if you are doing amazingly well?
Then they want more of your equity as cheap as possible. And the best way to achieve that is to convince you to run out of money and come crawling back to them for a 'bridging round'.
Does that mean investors are bad/you shouldn't work with them?
No. Just take this into account when talking cashflow projections with them...
This is what bad investor looking for a quick win do. VCs who treasure their reputation and play the long game are different.
While this might be the cases at times, I wouldn't say it's necessarily a "fact about investors".
No VC/Investor is investing with the expectation of getting returns immediately or that the company is doing amazingly well in an unreasonable time period.
Also, when investments are written off, I believe it's more about accounting and less about having to think/worry about the investment.
Some VCs, especially the high-profile ones, could run out of patience much sooner, but that's what always happens with those tier-1 VCs.
And when things do go amazingly well, you can tell that certain VC to go F themselves since you'll have dozens of other options. (Not that I recommend on actually doing that)
At the end of the day, all I'm saying is that it's hard to say such bold statements about all investors / VCs. While VCs can easily "exploit" their portfolio companies, lot's of them simply don't.
You're probably right. That's not what I claimed though.
Pretty sure that's incorrect. Check here (and more generally any articles on how VC/angel returns are incentivised) for more...
That's exactly the point. Things going amazingly well == leverage.
But if you let yourself get in a situation where you're growing fast, metrics are good, but you don't have much money left in the bank and not much time to raise/find new investors, then your growth doesn't really matter --> you've put yourself in a situation where you're weak and the investors are strong. And the valuation will hurt.
If you stop and think about it, I'm not making a bold statement.
Investors want to find startups that have an amazing growth trajectory and invest as much money in them at as low a valuation as possible. That's their whole business model and reason for existence.
There's absolutely nothing wrong with that. But it's foolish to pretend it isn't the case (maybe with the exception of impact investors/amateur investors).