Skin in the game
Risk taking by startup founders

Skin in the game

Many VCs and angel investors ask startup founders - "What's your skin in the game? How much of your personal savings have you invested in your startup?"

An entrepreneur's greatest skill is de-risking.

We test and retest our hypotheses in the market everyday in the idea stage and as we launch and grow our startup. We try to minimize the chances of large scale failure by trying multiple things, failing fast and doubling down on things that work.

So, why shouldn't entrepreneurs take a de-risking approach to their finances?

Personally speaking, my savings are spread across a portfolio of insurance, real estate, long term bonds, mutual funds, public and private equity stocks. One of the many elements in my portfolio is the investment in my startup.

Skin in the game doesn't mean we put all our eggs in one basket.
Putting all your eggs in one basket - The Last Dodo

If all the founder's money is invested in the startup, the risk of the founder quitting is higher when things go south (which is inevitable in startup life). When the bank is empty, survival will require the founder to join a job that pays a salary. After all, founders also have families, EMIs and need sustenance money.

Founders who have pragmatically thought about their own money have a greater chance of lasting through tough times (without salaries if need be).

Startup founders are better off NOT investing all their savings into their startup. And investors need to re-evaluate how this is perceived during their diligence.

What do you think?

. . .

This article is a continuation of our startup chronicles as we build our latest and greatest. You can read the previous articles here:


Anurag Tripathi

Founder at HUX COFFEE COMPANY

5 年

It’s a great article...i really appreciate your views ??

Completely agree with you!! The opportunity cost of the annual package that he/she was making as well as personal commitment of time and effort should be proof enough..

Brent Butler

CEO and Founder

5 年

You know, this actually got me thinking. Foregoing salary and a "safe" corporate job, are definitely risk factors. And I would want to see that a startup founder has good personal financial management skills and pushing the chips in on one roll is not the wisest approach. However, you have to push some chips in, not just sweat equity, to prove to me you want this... not just sweat equity. I suppose each situation is different, but I'd still like to see some skin in most deals.??

Ananth AV

Associate Director at Pine Labs, Bengaluru. Gift Card Technology, Network Pre Paid Instruments, Channel Rewards,Loyalty Rewards,Employee Reward,Consumer Campaigns

5 年

One more good article read from your kitty. I presume that building up a product comes from a person who is trying to "SOLVE A SITUATION /PROBLEM". The amount of skin(money, idea, effort) is put in by that person to solve that problem, and need not be at the cost of self survival. Investors invest money on the passion of ENTREPRENEUR and will surely test depths of passion and one of the measure to check is to know the Founders investment part. If the measures are positive, then it's all about Gains-Profits

Harshawardhan Bhidé

Head of Steam Turbine Service, Factory Operations at Siemens Energy Charlotte

5 年

Do not disagree with the approach. This helps you focus on the start up without having to think about the pocket book issues. On the flip side how do you stay engaged? The thirst to succeed and building a company and brand needs to shine through.

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