Owning 100% of zero is worth as much as 10% of zero
posted in Business, Technology |There have been a couple of posts lately about VC funding and how much money you should take. The frequent advice from all sides (not just the VC guys) is to not get too hung up on what percentage of the company you end up with- get enough money to make the company successful, give enough equity to the other major players in the company to make the company successful.
This is all true as far as it goes, but it glosses over the key distinction between the non-VC funded company where the founders are keeping close to 100% vs. the situation once you accept funding. When you take that step, you are greatly increasing the size of the bet you are making. It is easy to think of it as “this should be a safer business play since I have money in the bank to fund whatever I need to do to be successful”. But at the same time you have changed the level of the acceptable outcomes. As a 3 or 4 person founder-bootstrapped company, you can all be very happy making $1-2M revenue or selling out for $5M. There are tons of business ideas that fit in this space that represent perfectly reasonable “base hits”. But generally with that bigger investment you are now in a mode of swinging for the fences, needing to target $100M+ in value to make it all work out.
Now, there are also lots of businesses that fit this model, but I suspect there are a lot more of those base-hit opportunities than the home-run ones. In baseball, the big home run hitters tend to not have the highest batting averages…
Please don’t misinterpret this post as to suggest that I’m down on VC. Its just that many new entrepreneurs I speak with at meet-ups seem to assume that it is the only model and/or don’t take the time to think about whether it is the right fit for their specific business idea and/or life goals. It is also worth noting that some segments of the VC industry are adapting and figuring out ways to make smaller investments make sense, creating incubators, etc.