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When a founder is already wealthy, why would they need or want venture capital for a new startup?

Marc aptly points out and certainly has the chops to comment on such matters it is a matter of gaining outside perspective rather than residing in your own “private Idaho.”

When an outside party’s money enters the equation an extra layer of scrutiny is added which can improve the process of self evaluating a concept. Think of this as a more rigorous form of proving a concept’s viability.

Secondly, it also important to consider how wealthy a startup founder is. A startup founder with a net worth of 1 million dollars operating a startup that may expose him or her to 5 million dollars worth of risk may wish to bring in outside funding to offset the financial risk to which his personal funds may be exposed.

Thirdly, although at first self funding a venture may be sustainable being in it for the long haul and being willing to stake a great deal personal capital in the long-term may be a turn off. In this sense self funding a project can lead to two distinct results the first is that the founder scales back the operation when this is not the proper course for the business. The second is that the self funding founder is unduly aggressive with his or her business strategy in order to get a result which can of course be detrimental in some cases. Outside funding can balance out any extreme tendencies by taking away pressure on the founder’s personal wealth.

There is no hard and fast rule as to wealthy founders. In some cases a founder’s wealth is the result of strong business sense that will serve a venture well, however if the terms of an investment deal are favorable outside funding can be a way to offset personal risk. Also, wealthy founders also will have the luxury of not living on mayonnaise sandwiches and ramen noodles while a venture gets off the ground so they will have a bit more flexibility in turning away deals that are not entirely optimal.

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