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I have no idea why people take outside money. If you can't afford to build it, start smaller, get rich, go bigger. What is the purpose of personal capital if no

I have no idea why people take outside money. If you can't afford to build it, start smaller, get rich, go bigger. What is the purpose of personal capital if not to bet on yourself?

JumpCrisscross 8y ago
> I have no idea why people take outside money. If you can't afford to build it, start smaller, get rich, go bigger 1. To diversify their finances. Going all in means every bet, if it fails, could be your last. (Less applicable for someone with Elon's name recognition.) 2. Some ideas don't scale down. Building a big rocket is a different game from building a small one. The lessons from the latter will apply roughly, at best, to the former. Same with tunnels. 3. To get intellectual and political buy-in. When people invest in something, they take ownership--financially and emotionally. Having shareholders who you can deputies to fight your battles can sometimes beat a hired hand.
- sbinthree 8y ago
  I think your second point is the most valid and hard to argue counter argument. I agree, there are things that simply require more capital than people have in their bank. I disagree that diversifying is virtuous unless there is a good reason to. Make the government your customer and your work will always be legal, not so for investors (see: countries "cleaning up" their portfolios, people still use gas though).
repsilat 8y ago
You take funding because you think it'll increase your personal rate of wealth increase. Loans are the simplest to understand -- it's leverage. If you think you can double your money in a few years with a business plan, and that opportunity scales passably well to more money than you have in your bank account, you can take out a loan. To use your language, leverage is just "betting on yourself" even harder. Taking on investors is different in that you can't ruin yourself doing it, but similar in that it increases your resources in a way that you hope will more than pay off over time against the cost.
- sbinthree 8y ago
  You absolutely can ruin yourself doing it. The more outside capital you have, the larger the expectations of eventual returns are. If I take $100M in risk capital, I have to surpass $250M in returns or it was a failure. Simply doubling the money, even if done in mere years, is a failure. So from that perspective, investor money is actually worse than loans. I agree that loans are good for leverage, and banks are much less likely than investors to change the terms because they are senior and covered somewhat from downside. Investor money very much can ruin a perfectly good business with outsized expectations right when it starts working.
maehwasu 8y ago
Another huge reason is to prove concept and make sure you're not fooling yourself. If you can get others to put in large amounts, it's an (imperfect) indicator of a kind of traction. Musk probably doesn't feel like he needs that validation, so the main reasons to take outside money would be leverage and diversification. The downside is some loss of control.
- bobsil1 8y ago
  Nobody else understands it or believes in it like you do.
- sbinthree 8y ago
  Customers are validation, not investors. It is way, way easier to dupe an investor than a customer.

I have no idea why people take outside money. If you can't afford to build it, start smaller, get rich, go bigger. What is the purpose of personal capital if not to bet on yourself?

JumpCrisscross 8y ago

> I have no idea why people take outside money. If you can't afford to build it, start smaller, get rich, go bigger 1. To diversify their finances. Going all in means every bet, if it fails, could be your last. (Less applicable for someone with Elon's name recognition.) 2. Some ideas don't scale down. Building a big rocket is a different game from building a small one. The lessons from the latter will apply roughly, at best, to the former. Same with tunnels. 3. To get intellectual and political buy-in. When people invest in something, they take ownership--financially and emotionally. Having shareholders who you can deputies to fight your battles can sometimes beat a hired hand.

sbinthree 8y ago
I think your second point is the most valid and hard to argue counter argument. I agree, there are things that simply require more capital than people have in their bank. I disagree that diversifying is virtuous unless there is a good reason to. Make the government your customer and your work will always be legal, not so for investors (see: countries "cleaning up" their portfolios, people still use gas though).

repsilat 8y ago

You take funding because you think it'll increase your personal rate of wealth increase. Loans are the simplest to understand -- it's leverage. If you think you can double your money in a few years with a business plan, and that opportunity scales passably well to more money than you have in your bank account, you can take out a loan. To use your language, leverage is just "betting on yourself" even harder. Taking on investors is different in that you can't ruin yourself doing it, but similar in that it increases your resources in a way that you hope will more than pay off over time against the cost.

sbinthree 8y ago
You absolutely can ruin yourself doing it. The more outside capital you have, the larger the expectations of eventual returns are. If I take $100M in risk capital, I have to surpass $250M in returns or it was a failure. Simply doubling the money, even if done in mere years, is a failure. So from that perspective, investor money is actually worse than loans. I agree that loans are good for leverage, and banks are much less likely than investors to change the terms because they are senior and covered somewhat from downside. Investor money very much can ruin a perfectly good business with outsized expectations right when it starts working.

maehwasu 8y ago

Another huge reason is to prove concept and make sure you're not fooling yourself. If you can get others to put in large amounts, it's an (imperfect) indicator of a kind of traction. Musk probably doesn't feel like he needs that validation, so the main reasons to take outside money would be leverage and diversification. The downside is some loss of control.

bobsil1 8y ago
Nobody else understands it or believes in it like you do.
sbinthree 8y ago
Customers are validation, not investors. It is way, way easier to dupe an investor than a customer.