Too much funding can be toxic for start-ups

September 4, 2009 | Chris Morris | Comments | |

The dream is a common one for entrepreneurs – find start-up capital and find as much of it as you can. But being cash rich isn’t always the best move for your company.  Mike Maples of Maples Investments, in this talk at the Stanford Technology Venture Program, says there’s an inverse correlation between the amount of money a start-up receives and their success.

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About the Author, Chris Morris

Chris Morris is editor of the Entrepreneur Corner on VentureBeat, helping start-up business owners launch and grow their companies. He previously worked at Yahoo! Finance, where he was managing editor, and as director of content development at CNNMoney.com. His work has also appeared in Variety, CNBC.com, AOL and Forbes.com.

  • This is definitely true. Too much funding leads to an overaggressive hiring and spending plan.
  • guillaumecohen
    There are additional reasons why raising too much money can decrease your chance of success: Investors expect certain returns - typically multiples of their investment- which will push you to build businesses that have a chance to provide that return, even if that chance is much smaller.... Many great smaller businesses can be built, but if the potential exits are too small for investors, they will push you for the bigger less likely ones. The more money you raise, the higher the bar for an exit is raised too...
  • nicholasthomas
    I would love to see a recent study on the number of start-ups that received funding during the boom, did not get their second round, and still survived through alternate methods of funding (angels, management, etc). Changing funding methods in a pre-EBITDA positive stage is a huge hurdle for most entrepreneurs because the networks and rules are so different. Also... working in a cash constrained environment is difficult for most employees who would naturally yearn for the "good days", become dissatisfied with tough times, and look for greener pastures elsewhere. A CEO that can traverse that challenge would have to be a strong leader.
  • alexisconoscenti
    How did Dov Charney do it, then? Inverse correlation? Possible sample selection bias in this study?
    It raises more questions. Think American Apparel: http://www.shoutle.com/dreamshout.html
  • alexisconoscenti
    btw...the gentleman in the middle looks like former Leafs GM, Pat Quinn