Startup Secret No. 5: Know when to walk away

The first of what will doubtless be many, "Take the money and run," tips.

"Casinos are paid for by guys not smart enough to walk out the door at 10 p.m."

--Peter Horan, executive chairman of Halogen Media, former CEO of About.com

This is the "Take the money and run" tip, which I predict will be making a regular appearance in this series, in different disguises.

Peter told me this as we were preparing to tape This Week in Startups episode No. 213 with Jason Calacanis (stay tuned for tips from him). Peter went on, "Entrepreneurs often get really bad advice from the 'go big or go home' people."

This item highlights a frequent and usually unspoken conflict between entrepreneurs and their funders (angels and VCs). There are plenty of startup CEOs who just want to build a nice and profitable, but small and manageable, business.

There are very few VCs who are happy with this.

I submit that "lifestyle business" entrepreneurs probably shouldn't take risk capital. Go to a bank and try to get a loan instead. Big VCs need to make big returns to make their investments work for their funds, and it is not uncommon for a VC to push an entrepreneur to hold out for the big win even when there's a nice little pot sitting there on the table just waiting to be scooped up.

Are there times when holding out for the hard eight is the smart thing to do? Of course. But the risk, stress, and work it requires is not for everybody. And the VCs aren't the ones doing the work.


Startup Secrets is based on personal interviews with people building companies and from their blog posts and news stories. Subscribe to Startup Secrets on Twitter or come back to Rafe's Radar every day for a new one. See all the Startup Secrets.

 

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