Question: Entrepreneurs having their own “skin in the game” is a recurring requirement when discussing the necessary steps to acquire investor funding. Just how much of your own money, and therefore risk, is enough to satisfy an investor?
Answer by Naomi Kokubo, Editor of Founders Space
Zero. You don’t need skin in the game. If the opportunity is good enough, investors will invest even if you haven’t put a dime into your company.
When investors start asking for “skin in the game,” what they’re really saying is that you haven’t convinced them that this is the next big thing. Or else, they’re worried that you’re not 100% committed and might just be after a nice paycheck instead of building the business.
One way to get around this problem is to talk about all the “sweat equity” you’ve invested. Add up all the hours you’ve spent on the business and put a dollar figure on them. I bet you’ll be surprised at how much you could have earned if you’d taken a job instead of building your company.
The bottom line is that when investors get nervous, they start looking at all sorts of things, like valuation, the amount you’ve invested, revenue, etc.
Don’t worry about putting money into a business just to please investors. Put in exactly what you need to grow the business to a point where it becomes viable. That should be your goal.
I hope this helps!