Institutional Investors' Time Pressure: Five Things Entrepreneurs Should Know

#DoNotBringInCapitalLightlyBeforeYouAreReady Today, a point about time: running a company and deploying capital involve fundamentally different views of time. Entrepreneurs can commit for the long term, even for the foreseeable future. Capital, however, has time limits. External capital at any particular stage is unlikely to stay with a founder forever; it will have a point when it must exit. (I suspect the operating models of venture funds advertised as perpetual may ultimately depart from the essence of pursuing high growth, high returns, and high risk within a limited time.) Because capital has time limits, it demands very high growth over a short period. Taking high risk and requiring high growth and high returns within a limited time is the essence of venture capital. If your business model still needs validation, or your product or service still needs time for refinement and testing, think particularly carefully about whether this is the right time to bring in capital. Once capital arrives, it demands high growth; there is little time to wait while founders slowly refine their products and services. If capital demands rapid growth while the founder has not figured out the direction and can only expand blindly to meet those demands, the result may well be disastrous. --- Now it is time for a few thoughts from Robin: 1. Institutional investors face time pressure and must dispose of holdings when funds mature. This creates urgency: they need growth to generate high returns quickly. Founders themselves may not share that same sense of urgency. 2. Institutional investors and unicorn startups are usually not satisfied with linear growth. Without exponential growth within a certain period of the entrepreneurial journey, a startup is unlikely to become a unicorn. If it cannot become a company with enormous market value, the returns it can offer investors are usually relatively limited. 3. If your startup is still refining its product or seeking PMF, do not rush to institutional investors. After investing, they will often ask you to position for exponential growth and increase market spending, rather than continue refining the product and searching for PMF. 4. Institutional investors' strong time pressure is not necessarily bad. If what you are doing is important and could become the next big thing, the time available to your team is usually short and the opportunity window narrow. You must use investor capital to establish your market position quickly. If you are only at the same stage as the giants when they enter, there will usually be little room left for you. 5. Many teams want to avoid time pressure and seek CVC or evergreen funds. Remember that these investors also have their own financial pressures and considerations. And, as point four suggests, a time-constrained VC may actually be the better choice.