4 ms·

Selling equity for capital introduces new risks though - many businesses are pushed to grow too quickly and take actions in the pursuit of billion dollar exits

Selling equity for capital introduces new risks though - many businesses are pushed to grow too quickly and take actions in the pursuit of billion dollar exits because they had raised money which causes them to fail. Sure, the capital injection helps grow quicker but many businesses could have been comfortably bringing in a few million dollars per year but end up dying because they were forced to grow too quickly.

bayesian_horse 7y ago
Not what I'm talking about. No outside funding means the founders carry 100% of the risk. No amount or form of outside funding can increase that percentage (duh!). And if you are putting in your time (with the associated opportunity cost), you should be asking yourself what kind of growth you are willing to accept in exchange, shouldn't you?
- alexcnwy 7y ago
  I’m saying you don’t just change the risk allocation by raising money, you change the risks themselves in a way that may be making your risk as a founder greater, not smaller. You don’t carry “all” the risk but your risk still goes up.
  - bayesian_horse 7y ago
    No. Raising money only changes risk allocation, not downside risk, unless you increase the value of the equity, which "raising money" doesn't do on its own. The valuation might increase at the same time, but that effect would not be just from "funding" but rather from non-money aspects of the partnership. There are all sorts of crazy agreements one could think up, but basically if a funding agreement increases your downside risk, it's really not so much about the funding but rather about a fundamental change in the venture. Otherwise, why do it? Of course you can enter an agreement where you increase the risk of the venture failing significantly. But that's not fundraising, and it's probably not smart, either. And the risk of staying small is sometimes underestimated. If you enter into a funding agreement where you put in your own money, or a loan you personally guarantee, that would increase your downside risk. But it's also not fundraising, because it's your money.

bayesian_horse 7y ago

Not what I'm talking about. No outside funding means the founders carry 100% of the risk. No amount or form of outside funding can increase that percentage (duh!). And if you are putting in your time (with the associated opportunity cost), you should be asking yourself what kind of growth you are willing to accept in exchange, shouldn't you?

alexcnwy 7y ago
I’m saying you don’t just change the risk allocation by raising money, you change the risks themselves in a way that may be making your risk as a founder greater, not smaller. You don’t carry “all” the risk but your risk still goes up.
- bayesian_horse 7y ago
  No. Raising money only changes risk allocation, not downside risk, unless you increase the value of the equity, which "raising money" doesn't do on its own. The valuation might increase at the same time, but that effect would not be just from "funding" but rather from non-money aspects of the partnership. There are all sorts of crazy agreements one could think up, but basically if a funding agreement increases your downside risk, it's really not so much about the funding but rather about a fundamental change in the venture. Otherwise, why do it? Of course you can enter an agreement where you increase the risk of the venture failing significantly. But that's not fundraising, and it's probably not smart, either. And the risk of staying small is sometimes underestimated. If you enter into a funding agreement where you put in your own money, or a loan you personally guarantee, that would increase your downside risk. But it's also not fundraising, because it's your money.