Entrepreneurship Part II: Dangerous Capital

In December, a small group of current and prospective entrepreneurs gathered to discuss internet product development. I was invited to participate on the panel along with Kanth Gopalpur.

One of the first topics the group raised was how to raise venture capital. New and prospective entrepreneurs seem rarely to think, “I want to become an entrepreneur,” without following it with, “but how can I raise venture capital?”

Kanth and I reiterated the fact that a sudden influx of money can be dangerous for entrepreneurs. Whether the influx comes from a round of venture capital or from an IPO, it can create the temptation to risk customer relationships in generating investment returns. The entrepreneur risks money rapidly with the hope of large revenues, instead of spending money slowly, with the assurance of small revenues.

Although I was only relating what I had observed of entrepreneurs, I later concluded that this behavior is almost inevitable. The next three posts will discuss why.

If you have observed entrepreneurs risking money rapidly (or not), then please comment below.

Tags: Business, Economics

Created at: 11 February 2009 11:02 AM