In the companies I worked for, the major investors usually had a few seats on the Board of Directors. Also, they generally invested because they were major potential customers and hoped to use the startup’s technology as a competitive advantage in their own companies. And the investment contracts had many strings attached to preserve the investor’s flexibility at the cost of the startup’s. So they could (and did) renegotiate research agreements under unfavorable terms when the startup couldn’t deliver as promised, trigger contractual provisions that gave them extra control if revenue targets weren’t met, lead boardroom motions to replace senior management, send their people around to monitor the workplace (board members have that right), etc.
Or they’d just shut off the funding. A startup that has investment will almost always add staff and other costs; that’s why they wanted funding in the first place. But that means that the burn rate rises to the point where the company can’t survive long without more cash*, and its current investors are by far the easiest people to tap for cash. When they cut off the spigot, several of my employers weren’t able to survive long enough to find more funding.
*It would be nice to get several years worth of cash at once, but most investors were unwilling to commit more than six months at a time. Maybe a year, at the outset.
In the companies I worked for, the major investors usually had a few seats on the Board of Directors. Also, they generally invested because they were major potential customers and hoped to use the startup’s technology as a competitive advantage in their own companies. And the investment contracts had many strings attached to preserve the investor’s flexibility at the cost of the startup’s. So they could (and did) renegotiate research agreements under unfavorable terms when the startup couldn’t deliver as promised, trigger contractual provisions that gave them extra control if revenue targets weren’t met, lead boardroom motions to replace senior management, send their people around to monitor the workplace (board members have that right), etc.
Or they’d just shut off the funding. A startup that has investment will almost always add staff and other costs; that’s why they wanted funding in the first place. But that means that the burn rate rises to the point where the company can’t survive long without more cash*, and its current investors are by far the easiest people to tap for cash. When they cut off the spigot, several of my employers weren’t able to survive long enough to find more funding.
*It would be nice to get several years worth of cash at once, but most investors were unwilling to commit more than six months at a time. Maybe a year, at the outset.