For many businesses & startups, getting funding is seen as an important, or even vital, stage in the path towards success, however getting VC investment can bring its own set of problems.
Eric Paley, a managing partner at Founder Collective, recently laid out some of these problems in an excellent opinion article for TechCrunch.
The founder, who himself built and sold a startup for $100m, speaks about the pressure VC funding can put on a founder, as more capital means more risk – limiting your exits and increasing cash burn.
And as he says, “VC math” can lead to irrational trade-offs for founders – the firm knowing it only needs a couple of big successes to pay for its other failures.
“When your business fails, which probability says it most likely will, that VC has 29 more shots on goal. You destroyed your single startup, not to mention the wasted sacrifice over years of your life. In most VC deals, the investor is taking much less risk than the founder,” Paley writes.
The founder points to companies like Plenty of Fish, the bootstrapped business that sold for $575m, not to “fetishize” boostrapping, but to say there is a “lot to learn by studying how these founders built huge businesses with efficient use of capital.”
Read the fantastic article here.