Some thoughts today on how "Your Cash is Your Strategy"
Applies to ppl, companies, funds - everyone!
1) I started thinking about this topic yrs ago when I was talking to a fellow founder about my Co @launchbit
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2) if you are
@elonmusk you can get access to cash (or use your own) to shoot for the moon (literally). But most first time founders can't raise money to build a new kind of car. It's not to say that shouldn't try but you have to have a cash strategy.Prikaži ovu nit
3) If you can't come up w a good cash strategy (such as in my case), you have to think through what is a stepping stone I can hit w cash I can access that allows me to build this end goal ultimately. It could be a smaller product. It could be to zag to a peripheral prod. Etc.
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4) as a vast generalization, it means that usually prev successful entrepreneurs who may have access to more capital than most ppl can shoot for something higher risk and higher return. That's a moat in itself.
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5) On the flipside, as a fund, cash is also an impt part of strategy. If you have a $10m fund, there are some cos that are better for *your fund* than others.
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6) For ex: as a $10m fund it isn't strategic to invest in ad based startups. Even if those cos go on to do very well, they need a lot of capital to get to monetization that you don't have in your fund! Similarly for other high cap cost cos - HW, e-commerce (inventory costs)
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7) one way this can work well for a small fund is to have really close rapport w big funds that you know will just love whatever you are backing. This protects downside risk.
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8) 2 yrs ago, I talked to this Co that I really liked. Super seemingly scrappy founders. But a marketplace where I was really concerned w the unit econ. There just wasn't going to be a high enough take rate to build this biz w little cap.
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9) So there was risk in this failing because they needed lots of capital to make this work - that I couldn't provide and also even if they could raise from others lots of money, I would take huge dilution. So I passed.
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10) It was a great company but not a great match for our small fund. Just wouldn't have been good strategy. This co has since gone on to raise a large seed round from whose who investors & they will likely do well because these funds can pour in tons of $$. Did I make a mistake?
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11) Maybe they will become a unicorn that I missed but even if they do, you can't use "resulting" (read
@AnnieDuke) to retroactively take a result and say it was a bad decision. Strategically it was the sound decision given our fund size even if the outcome turns out differently.Prikaži ovu nit -
12) Sometimes if you have a lot of cash you can play more aggressively and take more risk. If you have less cash, you need to play a longer game to amass cash to then take bigger risk.
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Conversely if you have a ton of cash some projects are too small, so that can act as a constraint as well (e.g. Google/Apple).
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Great pt!
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