The Perils of ‘Wrong Money’: Eric Partaker on Investor Pitfalls

In a recent LinkedIn post, Eric Partaker delves into the critical distinction between beneficial and detrimental investment, arguing that accepting capital from the wrong investors can be more damaging than receiving no funding at all. Partaker, a prominent entrepreneur and CEO, highlights how founders often learn this lesson too late, leading to significant challenges in their business growth and personal stake.

Understanding Investor Archetypes and Their Pitfalls

Partaker breaks down common investor types, emphasizing that their motivations and operational styles can either propel a business forward or stifle its potential. He begins by examining angel investors, noting that while the right angel can be invaluable, the wrong one can become an intrusive burden.

The right angel opens every door in their network.
The wrong one texts you 47 times a week with “ideas.”

As Partaker points out, the issue with some angels isn’t just their involvement, but their outsized expectations relative to their investment. “They invested $50K but want to run your company,” he writes, underscoring the importance of selecting angels based on their relevant experience rather than solely their financial contribution.

Venture Capital: Rocket Fuel or Explosive Hazard?

Moving on to venture capital, Partaker likens it to rocket fuel, which can lead to incredible acceleration but also catastrophic failure if misapplied. He stresses that VCs typically require immense returns, often in the 100x range.

The Unicorn Trap

According to Partaker, this high-return expectation can be problematic for businesses that are profitable and growing steadily but not on a trajectory to become a “unicorn.” He warns that VCs might push such companies to burn excessive cash in pursuit of hyper-growth, potentially leading to their collapse.

Take VC money only if you’re genuinely building a unicorn.
Otherwise, you’re just their lottery ticket.

This perspective suggests that founders must have a clear understanding of their company’s potential and the VC’s return expectations to avoid a misaligned partnership.

Private Equity and Strategic Investors: Different Agendas

Partaker also addresses private equity (PE) and strategic investors, highlighting their distinct, and often conflicting, priorities compared to a founder’s vision.

Private Equity’s Focus on Exit

When discussing private equity, Partaker states that their primary concerns are EBITDA multiples and exit timing, not necessarily the founder’s long-term vision. He cautions that PE firms may impose debt, cut projects, and prioritize a quick flip.

Strategic Investors’ Complicated Game

Strategic investors, often large corporations, may express interest due to a company’s product. However, Partaker warns that this interest can manifest as a desire to copy the technology, restrict market access, or veto future plans that conflict with their own corporate strategy. “It’s their game, not yours,” he asserts.

The Compounding Effect of Bad Decisions

The core of Partaker’s message is that the negative consequences of taking money from the wrong investors compound over time. He illustrates this with stark examples:

• The founder who bootstrapped longer retains ownership.
• The founder who accepted predatory VC terms becomes an employee.
• The founder who sold to PE too early watches their creation dismantled.
• The founder who took strategic money from a competitor faces “golden handcuffs.”

“Wrong money compounds faster than no money,” Partaker concludes, emphasizing that good investors amplify momentum, while bad ones introduce persistent friction. He urges founders to thoroughly vet potential investors and understand the implications before signing any deals.

Partaker also included promotional material for his Founder & CEO Accelerator program and a free PDF cheat sheet comparing investor types, directing readers to specific links for more information.