Essay on The Tech Start Up Fallacy

753 Words Oct 18th, 2015 4 Pages
The Tech Start-Up Fallacy
Every community wants a vibrant economy for its citizens. Of all the categories of business, the most coveted businesses tend to be tech start-ups because of their higher payed employees. However, to provide the fertile environment necessary for them to spring up and grow requires access to a pool of risk capital such as Venture Capital (VC) funds. Incubators and accelerators are created to nurture the mostly product based tech start-up entrepreneurs and get them ready for the VC shark tank. However, while this may appear to be a strategy made in heaven, it 's full of landmines for the start-up and the community that is all too often ignored.
The first thing to understand for the business is that not all investors are created equal. Essentially, there are 3 types of equity investors. First, there are friends and family which are most often considered dumb money. Dumb money investors provide capital for the business, but usually provide nothing in terms of support or contacts for the fledgling business. While may entrepreneurs think they know it all and want dumb money silent partners, the reality is that most entrepreneurs would benefit by smart money investors. Therefore, the second type of equity investors are commonly referred to an angel investor. Most often the angel investor provides some level of expertise and contacts along with their money to the business. These types of investors are what I would considered smart money. Finally, there is…

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