Re:Scalabe Funding - Money as you need it?
by GavinB on Sunday May 11, 2008 @11:01PM
(#187229)
The extra advantage held over the VCs can be balanced by their ability to cut their losses at any time. Let's say you get $1M/month for 2%/month. If the VC gets cold feet, they can pull out after a few months rather than wait for a long and expensive failure, rather than having to offer $12 Million up front for 24% of what could turn out to be nothing.
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Trading ability to cut your losses at 50% of typical investment for inevitability of being cut off at 50% of a hugely successful return will balance out.
However, a hugely successful investment will bail sooner than 50% is reached. Thus the skew is in favor of startup.
Of course the actual negotiation may not take math into account. :-)