Business Owners often ask me the following question “Why does a startup with revenue and growth need an investor?”
Let me explain why.
In any market, one-two-three leaders get most of the money. Investors earn money only if they invest in a future leader.
Now imagine the situation. We have a growing market which is still small. If the market is promising, then many players quickly show up, and they all are still equally small. Who will become the leader?
If founders do the right things, they get revenue. The market is growing, so does the income of all players. Everyone is playing on the same market, and the margin is roughly the same, which means that everyone has the same profit. Founders who are smart invest this profit in future growth. But if everybody invests the same amount of money in growth, they grow all the same rate with the pace of market growth. Who will become the leader?
The first one to borrow the money (loans or investments). They can now use this money to grow faster than the market. Thus, overtaking all the others who live “on their own”.