When you judge a promoter on his interest in the business in terms of equity contribution brought into the business, what would you consider more sensible?
A. bringing in equity capital in phases
All start-ups are prone to initial setbacks but some of them can recover if further capital is pumped in to the changed business model (pivot). If the promoter spends all his money in the first attempt/business model, he would never have money to implement the pivot.
B. Bringing in equity capital in one go right at the beginning
If the promoter has brought in all his money into the business right at the beginning, it shows his dedication and indicates that come what may, he will make his business work.
From an investor perspective:
- How do you determine which level of capital brought in is enough to prove seriousness of the promoter in the business?
- Would the amount of personal equity brought in, indicating dedication to the business, vary from industry to industry? (My sense is yes. Tell me if I am wrong)
How would the assessment vary between the first equity investor and the first debt “investor”?