Startup Funding Espresso – Toxic Startups

Toxic Startups

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

Startups can be great or they can be toxic.

Investors should look out for these signs you are talking to a toxic startup

Broken cap table — the cap table has dozens of investors on it, each with their own terms and rights.

This will be a problem for follow-on fundraising as it shows too many investors with competing interests.

Customer concentration — the startup has one big customer among a few smaller customers.

This will be a problem for the founder as that customer will control the pricing, terms, and potentially other aspects of the business.

If the customer decides to leave, the company will encounter a major setback.

Questionable product market fit — the startup has a handful of customers wanting their service.

It’s unclear if this will lead to the greater portion of the market.

Unusual terms in the funding documents — this could be extraordinary rights held by the investors.

The investors and founders should both have a balance of risk and reward in the deal.

Founder and investor mismatch on growth plan — the founders and investors want to grow the business in fundamentally different ways.

It’s often the case that one wants to grow organically and the other wants to grow fast.

This leads to contentious arguments at every board meeting.

Look for these signs of toxicity in any startup you may consider investing in.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding. Let’s go startup something today.

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