Can too much money too soon cause start-ups to fail?
As many New Jersey business owners may know, it can be hard to raise money for a new business. They may think that the more money they can raise, the better. However, as some business owners can attest, raising too much money too soon can actually hamper the growth of start-ups.
Some start-ups raise a lot of money before they've even proven their business model, and that can be scary. Investors will want the business owner to scale the business before the business owner even knows what the business is all about. Plus, too much money means too much pressure to spend it. This can lead to unwise business decisions, with the money being spent in the wrong areas.
Too much money can actually narrow a business' options. Investors and other outside influences will want to have their say in how the money is spent, resulting in a vision that could be dramatically different than what the owner of the start-up dreamed. Also, more money means less discipline. Starting a business requires exceptional focus, and that focus can be diminished when the owner is sitting pretty on a pile of money.
When choosing an investor, focus on the right person for the business. It doesn't need to be a big-name venture capital firm, just a person who believes in the product as well as the company's goal. When start-ups align themselves with the right partners, they can find better uses for the money instead of getting too much at once and coming into problems that can cause the business to fail.
Source: Forbes, " Too Much Capital Is Toxic: A Cautionary Tale For Startups," Rob Asghar, July 25, 2013