Managing Risk While Pursuing Startup Ideas
Recently, I met with an entrepreneur in Austin, TX. They come from the Bay area and have a background in finance and private equity.
He pitched his idea, and I was put off by the opportunity initially. It seemed like a series of high-risk scenarios would need to fall in place for the idea to work. At a minimum, there were partnerships that would require millions in investment upfront.
I made it known to the prospect that this was a long shot.
What surprised me was he clearly understood the risks involved, and to him it was a worthwhile pursuit. Plus, the risk was manageable enough for him, so if everything went to zero, it would be a manageable setback.
Often, startup clients come to us with a “Hail Mary” approach to their company. This usually leads to them making poor decisions and cutting back on necessary initiatives when the cash gets tight.
If you’re going to pursue a startup with investor money or your own, make sure you clearly communicate the risks upfront. If the expected value and risk profile make sense for the investors, then you can pursue your idea with the proper funding and a clear conscience.