A well-known Israeli investor has warned startups that if they raise too much capital in their early days then they will explode their “financial bladder.”
Speaking at the Forbes Under 30 EMEA Summit this week, Yossi Vardi said raising vast sums at the beginning of a company’s life is a “death kiss” because it makes startups cash flow negative from the outset.
“There will be a high burning rate and it won’t generate a positive cash flow,” said Vardi at the conference in Tel Aviv, Israel. “Too much money will explode the financial bladder.”
According to the National Venture Capital Association, US startups raised $47.2 billion (£33 billion) in the first three quarters of 2015, which is by far the most since 2000.
Vardi, who has founded and helped to build over 60 tech companies in a variety of fields over the last 40 years, gave the young entrepreneurs in the audience several other bits of advice.
Among them, he said three people is the optimal number of cofounders to start a company with. One to deal with product, one with technology, and one with business.
He added that a third of startups fail because people don’t get along with each other.
“Relationships are key,” he said. “In Israel, the army is very relevant. The most important contribution to the ecosystem in Israel is that the people are able to see who they are compatible with and with whom they can work well with.”