What does a poor startup do when investors are in such a stone-cold frenzy that they’re calling at all hours of the night like the bad guy in Scream, saying “Do you like attractive valuations? I like attractive valuations,” and threatening to bury companies in enormous piles of tech-bubble money?
For founders still paying off their college loans, it can be awfully hard to say no. Fortunately, Fred Wilson, survivor of the Dot-com bubble, is here with some advice about how to deal with the deluge of dollars. Mr. Wilson blogs today:
Companies get hot. And investors start throwing money at them. Entrepreneurs get calls and emails all day long from investors wanting to invest. After a while, the entrepreneurs start to think that they should take the money. Not because they need it, but because they figure if people are throwing money at them, it’s probably a good idea to take some.
This is not necessarily the right thinking, says Mr. Wilson. He reminds start-up managers that all money, even cheap money from investors desperate to get in now, comes at a price. He urges companies not to take money they do not need, saying that raising more money has never in his experience been the reason one company vanquished a competitor.
On the other hand, companies that need additional money should open the floodgates and let the tech ramp-up send them soaring to new heights: “I have not seen a better time to raise money for web startups since the late 90s,” he says.
No matter what, Mr. Wilson says, it’s important that companies keep a level head. To bring horror movies back into this, have you ever noticed what happens to the character who succumbs to temptation against their better judgment? Careful out there!
mtaylor [at] observer.com | @mbrookstaylor