David Cummings on Startups

Dripping Cash into a Startup

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David Cummings

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Recently I heard a new term called dripping cash into a startup. I was talking to an investor who was describing an investment that hadn’t gone as expected. The startup was running out of cash and it came down to the typical predicament: shut it down, put small amounts of money in the company until it turns a corner, or make a big bet and capitalize it for another 18 months.

Here are some challenges with dripping cash into a startup:

  • It’s hard to invest for the future when the plug can be pulled at any time
  • With each bridge round comes more disillusionment, especially if the valuation keeps getting lowered
  • Desperation starts to set in if milestones aren’t being met, creating a more difficult environment

Now, in the ideal scenario, dripping cash into a startup works and things take off. This investor I was talking to prefers to either shut it down or make a big bet to sufficiently capitalize it — he doesn’t like dripping cash into a startup.

What else? What are some other thoughts around dripping cash into a startup?

Comments

3 responses to “Dripping Cash into a Startup”

  1. taylynbrown Avatar
    taylynbrown

    Speaking as someone who has little-to-no idea what she is talking about, I suppose it would have much to do with the situation, and mostly the entrepreneur. I have been hearing more and more of late that people invest in people, not ideas. How is the entrepreneur responding to the adversity? Will he or she even let it fail? The trep’s confidence would hypothetically influence my own.

    Food for thought.

    Reply
  2. barberj Avatar
    barberj

    Go big or go home!

    To your point on the ‘the plug could be pulled’, a big bet could energize the startup giving them that support and vote of confidence. Hopefully changing the tides.

    Reply
  3. Margaret Haynes Meritt Avatar
    Margaret Haynes Meritt

    You’re either all in or not. What plans does the start up have for a turn around call to action?

    Reply

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