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This is a classic investor fallacy Startups don’t ever die because they raised a full round at $20M valuation They die because the product sucks or the market doesn’t care Obviouslyhttps://twitter.com/ilan/status/1108088595544530950 …
It can be dangerous to raise a lot of money. Especially if it comes with investors telling you to spend it. It seems certain that startups have been harmed by raising too much. And startups are usually such a close run thing that that probably means some have been killed.
Is that also true for startups that have product market fit?
Good point. It's much less dangerous, but still dangerous I think. It's also much more dangerous for young founders. E.g. I didn't want to say anything at the time, but it was so obvious what was going to happen to Clinkle.
What percentage of startups do you think have been killed by raising too much money?
It must be pretty low, because it's such a luxurious problem to have.
Startups die because they fail to solve a problem in a specified amount of time.
And raising too much hurts you in both depts, because it turns into hiring too fast, and that both slows you down and shortens your runway.
Question from someone who doesn't understand the game: why would an investor have any say in how fast you spend their money, after they've invested? Isn't it more important to grow at a healthy, manageable rate? Can they rescind their investment?
To add 1 point I haven’t seen made yet.. it can kill startups indirectly as well.. Because that large sum of money can make a founder feel complacent if she subconsciously mistakes it for revenue.. And therefore lose urgency to test assumptions quickly which u do when ur broke
The other way I have seen this be dangerous is when money is raised at high valuations right before a market correction (eg 2001). Even though the company is objectively stronger, the next round is a down round, which creates issues with employee morale, outside perceptions, etc
@chamath’s POV ? Or something else ?
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