$1 Is Not Worth $1

Money from the right investor is worth more

Money is fungible, meaning one dollar bill is worth the same as another dollar bill. A common mistake, however, is assuming one investor’s money is worth the same as another’s.

Different companies face different challenges. A messaging startup, for instance, may need guidance monetizing its user base of 100M consumers while an enterprise startup may need advice selling to the Fortune 500.

Different companies also pursue different goals. One may aim for a $50M acquisition in six months while another hopes to become the next Apple.

Not all investors help equally well with these goals and problems. Venture capitalists traditionally seek billion-dollar exits, for instance, while angels may celebrate much smaller outcomes. Someone with a Rolodex full of CIOs is more valuable to an enterprise company than a consumer one. Financiers who backed eBay and Amazon complement a commerce startup better than, say, the venture arm of Cisco Systems.

Each dollar from an investor comes embedded with other properties like connections, advice, and expectations. These benefits are what cause investment dollars to vary in value. The more investors help, naturally, the more they’re worth. The wrong investor can ruin a startup in multiple ways, including flawed guidance, broken confidentiality, and anti-founder deal terms. Because of how much they can sway your startup’s fortunes, screen investors even more carefully than employees.

$1 is not equal to $1.

Related post: How to evaluate investors.

Related post: Key milestones for different financing stages.