VC Minute – quick advice to help startup founders fundraise better.
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Just because I know the risks, doesn’t mean I’m going to take the risk. I might think the risk of an unfavorable outcome is too high. Plus, most investors have their own dogma around certain things. For example, a fund may never invest in first time founders; they would view that as an unacceptable risk. Whereas another fund wouldn’t care either way.
Building a business is extremely hard. There are risks all along the way. The risk that you don’t get enough customers, that you can’t make critical hires, that you can’t grow fast enough, that you won’t raise that next round, that the competition heats up. Even systemic risks, like economy, inflation, regulation, pandemics.
Even the positive outcomes have risks. An acquisition offer that will 3X my check would be life-changing money for you, and I would be genuinely and incredibly happy for you. But it does almost nothing to fund my returns.
For me, the investor who is not involved in the business and doesn’t even have enough influence to convince you to tie your shoe laces, there is a risk beast around every corner with bloody fangs, waiting to pounce and devour your business whole. I know this. I invest in risky businesses. But I’m not going to take what I see as bad risks.
If I’m going to take the risk, then I need to be certain there’s a reward. A massive reward. Go back and listen to episode 33, Venture Scale Returns, to better understand this.
Here are a few questions you can ask to understand a potential investor’s risk appetite for your business. Is there anything here that is a hard no for you? What do you think is the riskiest part of my business right now? What have you seen founders do to de-risk that? Based on what I’ve shared, is there anything you’re still uncertain about?
When you dig in to understand their concerns, then you’ll know what you need to address either in that meeting or in future meetings.
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