Too Big to Succeed

We return to the question of how much money you should try to raise. There are some businesses which by their very nature require huge upfront investments. Infrastructure which is a hot area today is one such.

A startup which is attempting to raise a huge amount of money for such a project must be realistic about its current assets ( as opposed to its future value as perceived by its promoters).

Take for example a startup that wants to raise $100 million. A VC firm invests in a number of proposals to diversify risk. Only a VC fund with $ 1-2 billion or so in capital could contemplate investing in such a proposal. There are very few such firms.

Further, given that neither the startuo nor the VC would want the VC to take more than 20% stake in the company, the startup would be in effect valuing itself at around USD 550 million in asking for this amount.

Even a great team with a great idea may not merit this valuation unless it is backed with tangible assets like patents.

In order to increase its chance of succeeding the idea needs to be broken into smaller components. How best to do it will depend on the context.

So think big but don’t become too big to succeed. In this way, one day you may become too big to fail!

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