Asher's Blog

Founders are taught to fear running out of money. That fear is reasonable. A company without sufficient cash cannot pay salaries, serve customers, complete its product or survive long enough for a good strategy to work. Yet the urgency to avoid having no money can push a founder towards a danger that is less visible at the beginning and sometimes more destructive in the end: accepting the wrong money.

The wrong money is more expensive than no money. That sounds extreme because no money can shut a company down. But the cost of capital is not limited to interest or dilution. Capital can impose an impossible timeline, distort the company’s strategy, weaken founder incentives, create governance conflict and transfer control to people whose expectations are incompatible with the work.

No money creates a visible problem. Wrong money can create several hidden ones and give the company enough cash to avoid confronting them until they have become much harder to solve.

Money, as people often say, is amoral; it cannot make a decision by itself. The pressure comes from the people, institutions, agreements and incentives behind it. So when a founder asks, “How much can we raise?” the next question should be, “What will this money require us to become?”

Capital has a cost beyond its price

The obvious cost of debt is interest; the obvious cost of equity is ownership. But every source of capital also has a behavioural cost.

An investor may expect growth at a pace the market cannot support. A lender may require repayment before the financed project begins producing cash. A strategic investor may ask for exclusivity that discourages future partners. An individual investor may demand operational influence far beyond their ownership. A large round may encourage a small company to build an organisation designed for a future that has not yet arrived.

This is why two offers with the same valuation and investment amount are not necessarily equal. Board rights, vetoes, liquidation preferences, information requirements, time horizons, reputation and conduct under pressure can make one offer significantly more expensive than the other.

The true cost of capital is everything the company must surrender, accelerate, risk or become in exchange for it.

Wrong capital creates destructive timelines

Some businesses need time. Scientific research, regulated financial products, infrastructure, hardware, healthcare and deep technology often require years of development, approvals and market education before they can produce meaningful revenue. Even an ordinary software company may need time to understand customer behaviour and build a repeatable sales process.

Capital becomes destructive when its expected return arrives on a timeline the underlying work cannot satisfy.

A fund approaching the end of its life may need liquidity sooner than the company can responsibly provide it. A lender may require monthly repayment from a product that will not generate cash for another year. An investor may expect the startup to expand across five countries before it has proven one. The founder then begins managing towards the investor’s calendar rather than the business’s reality.

The result may be premature hiring, careless expansion, discounted sales, weak underwriting, rushed products or a new fundraising round undertaken only to meet obligations created by the previous one.

Fast capital is not always bad, and patient capital is not automatically wise. The issue is alignment. The clock attached to the money must fit the clock attached to the opportunity.

Wrong capital imports misaligned expectations

Every investor has a model of what success should look like. A venture fund may need a company capable of returning a significant portion of the entire fund. A family office may prefer capital preservation and steady distributions. A strategic corporate investor may care about access to technology or customers. An impact fund may require social outcomes alongside commercial returns. A wealthy individual may simply expect to be consulted on every important decision.

None of these expectations is inherently wrong. Trouble begins when the founder and investor believe they have agreed while imagining different companies.

A profitable regional business can be an excellent company and a poor venture investment. A company designed for patient infrastructure capital may be destroyed by short-term debt. A founder who wants to build independently may resent an investor who expects to be an active operating partner.

Alignment should be discussed before the money arrives:

• What size of outcome makes this investment successful?
• Over what period?
• Does the investor expect dividends, an acquisition or continued fundraising?
• How much risk should the company take in pursuit of growth?
• What happens if the company chooses profitability over expansion?
• What happens if the original thesis changes?
• Which decisions require investor consent?

When these questions are left vague, the disagreement does not disappear. It waits for the company to become vulnerable.

Governance problems can exceed the financial value

A cheque may fund eighteen months of operations while its governance terms affect the company for ten years.

Board composition, protective provisions, founder vesting, voting control, liquidation preferences and rights over future financing are not legal decorations. They decide who has power when people disagree.

Governance is most valuable when it introduces accountability, better judgment and protection against misconduct. A strong board can prevent a founder from making an irreversible mistake. It can also give investors confidence to provide more capital.

Bad governance does the opposite. It can paralyse decisions, turn ordinary disagreement into political conflict and allow one party to pursue personal interests at the expense of the company. A founder may discover that they still carry responsibility for results while no longer possessing enough authority to produce them.

The story of Zenefits is often reduced to a simple conflict between founder Parker Conrad and the company’s board. The public record is more complicated: the company faced serious regulatory and compliance failures, Conrad resigned under board pressure in 2016, and the aftermath involved disputes over responsibility and control. Conrad later built Rippling into another major company. The lesson is not that boards are bad or that founders should resist accountability. It is that governance, compliance, founder conduct and investor power become inseparable when a fast-growing company enters crisis.

Founders should negotiate governance for the difficult day, not the friendly day on which everyone signs.

Too much money can be the wrong amount

The wrong money is not only money from the wrong person. It can also be too much money at the wrong stage.

A company that raises far more than its present level of knowledge can mistake purchasing power for progress. It hires ahead of need, opens markets before understanding its home market, builds several products at once and surrounds an unresolved customer problem with an expensive organisation.

Large balances reduce the immediate consequences of weak decisions. Experiments continue longer because the company can afford them. Unproductive employees remain because salaries are still payable. Marketing conceals weak retention by continually replacing customers who leave. The company learns more slowly precisely because money protects it from feedback.

Africa has seen painful examples of well-funded startups shutting down. Ghanaian fintech Dash reportedly raised $86.1 million over five years, including a $32.8 million seed round, before closing in 2023. Nigeria-founded genomics company 54gene raised about $45 million before winding down the same year. These figures do not, by themselves, explain why the companies failed, and outsiders should be careful about pretending to understand every internal event. They establish a narrower point: access to a very large amount of capital does not guarantee durability.

Capital can finance the search for a business model. It cannot replace one.

Constraint can unleash intelligence

I believe constraint is one of the great forces behind creativity. When there is no easy money, a serious entrepreneur is forced to think. What can we build ourselves? Which feature matters most? Can we sell before hiring? Can we use an existing distribution channel? Can a customer finance development through an advance commitment? Can software replace a repetitive process? Which cost exists only because we have never questioned it?

The early SpaceX story is a useful illustration. Elon Musk initially explored buying rockets from Russia for a Mars-related project, but the available options were too expensive and the negotiations failed. He returned to the underlying engineering and economics of rockets and concluded that the raw materials represented only a fraction of the price of a completed launch vehicle. That first-principles analysis helped shape the decision to build rockets rather than buy them.

The lesson is not that any founder can reproduce aerospace hardware cheaply, or that the quoted price of a complex product is merely the cost of its materials. Engineering, talent, testing, failure, regulation and manufacturing systems carry enormous costs. The lesson is that constraint forced the team to question an assumption that initially looked fixed.

Money often allows us to purchase the existing answer. Constraint can force us to discover a better one.

Do not romanticise undercapitalisation

Constraint is useful, but starvation is not a strategy. Too little capital can force a company to make equally destructive choices. A team may postpone security, compliance, maintenance or customer support. Founders may accept bad contracts because they need immediate cash. Talented employees may leave because the company cannot pay them reliably. A product may fail because the business never had enough runway to complete it properly.

The law of constraint should therefore not become an excuse for permanent scarcity. The goal is not to deprive a good company of the resources it needs. It is to preserve enough constraint to maintain clarity, speed and ingenuity.

The right amount of capital funds the next stage of learning and execution without insulating the company from reality.

Many businesses are not ready for money

People often ask for investment before they have built the ability to allocate it.

Capital magnifies the quality of existing decisions. If the company understands its customer, knows the next bottleneck and can measure the return on new spending, money may accelerate progress. If strategy is confused, controls are weak and nobody understands the economics, money may simply make the confusion larger.

Before raising, a founder should know:

• What specifically will the money accomplish?
• Which milestones should be reached before it runs out?
• What assumptions are being tested?
• Who is responsible for allocating and controlling it?
• What will be stopped if the evidence is poor?
• What new risks will the money introduce?
• How will the company report progress honestly?

“We need money to grow” is not an allocation plan. Growth into what, through which channel, at what cost and with what expected return? Readiness for capital is the ability to convert money into durable value.

Desperation is expensive—for founders and investors

I am cautious when a founder is desperate for money. Desperation can make people hide facts, exaggerate forecasts and accept terms they do not understand. It can also cause investors to obtain an apparently attractive deal in a company whose leadership is no longer making rational decisions. A low valuation does not make a weak situation safe.

This does not mean nobody should invest in a struggling company. Some of the best investments are made when a fundamentally valuable business encounters a temporary crisis. But distress capital requires stronger governance, deeper diligence and a credible recovery plan.

An investor should look for evidence that the founders are already responding intelligently. Have they reduced costs? Are they speaking to customers? Have they changed pricing or collections? Are they pursuing revenue rather than treating another equity round as the only answer? Have they identified the specific cause of the crisis? Are they willing to make difficult decisions?

I would rather back founders who, even at the brink, are still creating options. They may be testing another revenue line, selling services while preserving the larger product vision, renegotiating obligations or finding a simpler route to the same customer need. Their actions show that the investment will accelerate a recovery rather than postpone a reckoning. An emergency cheque without operational change merely moves the date of failure.

Revenue is evidence of adaptation

When a startup is struggling, founders sometimes become completely absorbed by fundraising. Every conversation is about investors, valuation and runway. Meanwhile, the customer receives less attention.

Equity is not revenue. A founder should constantly ask what the company can sell now without destroying its long-term direction. This does not mean chasing every unrelated opportunity. It means using the company’s knowledge, technology, relationships and credibility to create value customers will pay for.

Services may finance product development. Enterprise contracts may provide more patient revenue than consumer growth. Annual prepayments may improve working capital. A narrower version of the product may solve an urgent problem sooner. An asset that is not central to the business may be licensed rather than abandoned.

The ability to generate revenue under pressure is evidence that the company can adapt. It also improves fundraising leverage because investors are no longer being asked to finance pure helplessness.

The strongest founder does not say, “Give us money or we die.” The founder says, “This is how we are keeping the company alive, this is what we have learned, and this is how your capital can multiply what is beginning to work.”

The wrong money changes behaviour before it changes ownership

Founders often focus on dilution because ownership is easy to calculate. Behavioural distortion is harder to place in a cap table.

If investors reward vanity metrics, the company begins optimising for vanity metrics. If the next round requires growth at any cost, teams may discount recklessly or weaken risk controls. If the board treats every difficult truth as incompetence, management learns to hide bad news. If continued funding depends on pleasing one powerful person, strategy becomes political.

These changes can occur even when the investor never gives a direct instruction. People learn what the capital rewards.

The right investor makes honesty easier. They want bad news early, understand uncertainty and demand disciplined thought rather than theatrical confidence. They challenge the founder without making the organisation afraid to report reality. Capital should increase the company’s capacity for truth.

How to recognise potentially destructive capital

No checklist can reveal another person’s character completely, but warning signs deserve attention:

1. The investor creates artificial urgency. You are discouraged from obtaining legal advice, checking references or understanding the terms.
2. The return expectation does not fit the business. The required scale or timeline is disconnected from the market and product.
3. The investor wants control without corresponding responsibility or expertise. They seek vetoes and operating influence but offer little relevant value.
4. Former portfolio founders describe retaliation, unpredictability or broken commitments. Patterns across several companies matter.
5. The investor’s source of funds is unclear. You do not understand who ultimately controls the money or what obligations sit behind it.
6. The terms behave badly in difficult scenarios. Downside provisions can transfer far more value or control than the headline valuation suggests.
7. The investor encourages spending before learning. Hiring, expansion and publicity are prioritised over customer evidence and economics.
8. The relationship depends on informal promises. Important commitments are enthusiastically made but resisted when you ask to document them.
9. The capital threatens future financing. Exclusivity, unusual rights or reputation may discourage better investors later.
10. You feel unable to tell the truth before the deal has even closed. That problem will become worse after the investor has power.

One warning sign may have an innocent explanation. Several together should not be ignored because the company needs cash.

What the right money looks like

The right money does not mean easy money or an investor who agrees with everything.

Good capital can be demanding. It may insist on stronger controls, disciplined reporting, an independent board member or the removal of an underperforming executive. Those demands can protect the company.

Right capital is aligned capital. Its expected return fits the opportunity. Its timeline fits the work. Its governance improves decisions rather than creating paralysis. Its amount is sufficient for the next meaningful stage without encouraging waste. The people behind it behave consistently, understand the risks and allow facts to change the plan.

Most importantly, right capital leaves the company more capable than it found it.

Sometimes no is the most valuable financing decision

There are moments when the responsible decision is to decline a cheque. That decision is easier when the company has revenue, runway and more than one option. It is painfully difficult when salaries are due. This is why capital strategy begins long before fundraising: control costs, build customer revenue, maintain accurate accounts, develop investor relationships early and raise before desperation removes your judgment.

No money is a serious problem, but it is an honest one. It forces a founder to reduce, sell, rethink, pause or close. Wrong money can delay those decisions while adding dilution, obligations and conflict. It can leave the founder with less ownership, less authority and the same unresolved business.

Do not raise merely because capital is available. Do not measure an offer only by its amount or valuation. Examine the clock, expectations, governance, incentives and character behind it. Ask whether the company is ready to use it and whether the money will enlarge intelligence or merely enlarge spending.

The right money helps a sound company move faster. The wrong money can make a confused company travel faster in the wrong direction.

And sometimes the most valuable money in your business is the money you had the courage not to take. —

References and further reading

• TechCabal, “Dash shuts down after raising $86.1 million in five years”.
• BusinessDay Nigeria, “Investor confidence takes hit as promising African startups fail”.
• Paul Graham, “How to Raise Money”.
• Brad Feld and Jason Mendelson, Venture Deals.
• Noam Wasserman, The Founder’s Dilemmas.
• Ashlee Vance, Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future.