As an investor, one of the key questions you need to ask before investing in a company is whether the company will succeed without you. If the answer is no, it’s wise not to invest.
If we think about each of the things that a company needs to do to be successful, they basically boil down to building a product, getting people to use that product (achieving product market fit), and scaling. Each of these things can be done with little money. It will just take a very long time. VC funding allows you to get things done faster.
For example, money lets you hire a larger team and make product iterations much faster. You’ll therefore build more versions of your product in a fixed amount of time and this will make you more likely to achieve product market fit faster.
Money also lets you experiment with different distribution channels to find what works. You could find product market fit without money but you’d have to avoid expensive channels and try the free and cheaper ones one at a time rather than in parallel. This could take a very long time.
And once you’ve found product market fit, money lets you scale your operations faster. Whether this means launching new cities, expanding your warehouse, or investing more in your highest returning distribution channels, money lets you do more in each of these areas in less time.
However, as each of these examples shows, outside money is an accelerator for companies. It shouldn’t be the reason the company exists. The company should be able to build its product, find the right distribution channels, and scale without outside money. It will just need to rely on its internal cash flow to do so and this will take a very, and perhaps very very, long time.
As an investor, you should only invest when you find such a company that can succeed without you. This will allow you to fulfill your purpose of fast-tracking the business’ success rather than simply bankrolling its failure.