Startup Funding Warning: “Bad Money” Is Dangerous

As a startup founder, the process of raising funds can be both exciting and stressful. You need money to fuel your business and make it grow, but you also want to make sure that you’re bringing in the right investors who share your vision and values. In this video, startup consultant James Sinclair cautions against accepting money from investors who may not be a good fit for your business.

Sinclair advises that if the person you’re raising money from is a “prick,” you should run as fast as you can. He acknowledges the temptation to accept money from such individuals, but warns that it’s not worth it in the long run. “Money solves problems, money solves everything,” he says, but adds that accepting bad money can lead to bigger problems down the line.

Sinclair emphasizes that the relationship between a startup founder and an investor should be equitable. If the investor is making unreasonable demands or not treating you with respect, it’s a red flag that they may not be the right fit for your business. He also warns against getting too attached to the idea of having money and thinking that you can deal with a difficult investor down the line. Once they’re on your cap table, they can be difficult to remove.

The importance of choosing the right investors is echoed by many successful founders. For example, in an interview with TechCrunch, Brian Chesky, the co-founder and CEO of Airbnb, shared that one of his biggest regrets was accepting money from investors who didn’t share his vision for the company. He learned that “bad money” can cause more problems than it solves.

In conclusion, Sinclair’s message is clear: be selective about who you take money from. Don’t let the allure of funding blind you to the potential downsides of accepting money from investors who may not be a good fit for your business. As the old saying goes, “not all money is created equal.”