Startup…

“That’s risky, isn’t it?”

I don’t know if this is true but I think people see risk as 2 binary outcomes – ZERO or ONE.  Either they’ll see something as very risky or not risky.  This is one of the main reasons why entrepreneurs tend to be pig-headed about what they’re pursuing — this has its advantages but reality checks are also necessary.

Back to the question… what is everyone missing?

Optionality!

A startup is a portfolio of options — that’s what gives a startup all of its value.  Potentiality is not worthless!  Amazingly, people don’t see companies investing in training and development as worthless — that’s creating optionality too.  (Side note: we are domain-specific — ask a sky-diver if jumping out of a perfectly good plane is risky).

But, why are some startups able to raise a ton of cash while most don’t?

The main reason is marketing but let’s leave that aside for the moment.

The answer is another question… Does this startup have the capability to realise the potential.  Or in options language… will the option(s) embedded in this startup ever be In-The-Money.

And the single biggest determinant of a start-up ever realising its potential are the people behind these options.  People determine the likelihood of a business or project ever becoming In-The-Money.

Investors back people, not just ideas.

This also explains why a company with no profit can have an ever-increasing market value.