I probably look at outside investment differently because of my finance background. When I hear that a startup raised $5 million or $20 million, my first thought is not necessarily that the company is successful. My first question is usually: what did they give up for it, and what are they going to do with the money? That made the investor dilemmas in The Founder’s Dilemmas particularly interesting to me. Outside capital can completely change what a startup is capable of doing. It can fund technology, employees, marketing, acquisitions, or expansion that would take years to accomplish using internally generated cash.
But the money comes with another person at the table. Research on venture-backed startups shows that this concern is legitimate. Outside investors can dilute a founder’s financial ownership and influence over the board, and in some situations investors can even replace the founder as CEO. That does not make investors bad. They are putting their own capital at risk and should have protections around that investment. It just means founders need to understand the entire transaction rather than focusing on the dollar amount being raised.
If Mindful Money ever reached the point where outside capital became an option, I would want to answer a pretty basic question before pursuing it: What exactly does this money allow us to do that we cannot do without it? If the answer was that $1 million would let us build a technology platform and enter several markets years earlier than we otherwise could, that might be worth giving up some ownership. If the answer was basically “having more cash would be nice,” I would have a harder time justifying it.
I would care about who the investor was. Someone who understood the business, had useful relationships, and generally agreed with the direction of the company could bring a lot more than money. Someone who had completely different expectations about growth or the eventual exit could make running the business miserable. I do not think raising money should be treated as the goal itself. Capital is a tool. The real question is whether what the company gains from that capital is worth the ownership, control, and flexibility the founder gives up to get it.
References
Wasserman, N. (2013). The Founder’s Dilemmas. Princeton University Press.
Ewens, M., & Marx, M. (2018). “Research: What Happens to a Startup When Venture Capitalists Replace the Founder.” Harvard Business Review.