Do investors invest where a founder has multiple startups?
Investors are normally hesitant to invest in founders and Startups running multiple startups simultaneously. The maij reason is that it indicates a lack of focus and increase the risk of failure of such startups.
However, there can be exceptions based on the extremely good track record of the Founder or Founding Team
However, an investor might reconsider if they have prior knowledge of the founder’s success, believe the founder has a strong team in place for each venture. Investors may look at if the startups are in not seeking venture capital, rather they are looking for growth capital.
Reasons for investor hesitation:
Lack of focus: This is the most important reason why investors don’t in Founders having multiple startups. Juggling with multiple startups can lead investors to believe the founder is not fully committed to any single company.
Increased risk: Having multiple ventures increases the risk of the founder burning out or failing to give any one company the full-time attention it needs. This may result in failure of one or both the Companies.
Diluted investment: Diversion of Funds and other resources between companies is another worrying factor for the investors. Investors worry their money and other resources might be spread across multiple businesses instead of being dedicated fully to the one they are investing in.
Prioritization concerns: It can be unclear which company will be prioritized if one begins to succeed or if both face challenges. Here the question of Founders attention comes into the picture.
Under the following scenarios , an investor might proceed to invest even if the Founder is managing multiple startups.
Founder’s proven track record: A successful track record of building, growing and exiting startups can mitigate concerns about a founder’s ability to manage multiple projects.
Strong team in place: If the founder has a strong leadership team for each venture, the investors will look at the investment positively.
Nature of the startups: Investors might be more receptive if the startups are in different stages, such as one being a “lifestyle business” or another having already secured significant funding and a strong management team.
Founder’s role: If the role of the Founder is limited to guidance and there is other Co-founder or a strong leadership team, investors won’t worry much about investing in such startups. In other words, founder is having a more “rainmaker” or visionary role, allowing other team members to focus on daily operations.
Founder is a “serial” entrepreneur: Some investors are comfortable with founders who build multiple businesses sequentially rather than at the same time.
Key takeaway:
Normally, many investors view it as a “red flag,” a founder’s history, the strength of the teams they build, and the stage and funding model of each startup are critical factors that could sway an investor to proceed.
Team- StartupIndia.Club
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