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Ask HN: Is it OK to invest $$$ from a profitable biz into an unrelated startup?
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1 points
by dmitrydragilev
4091 days ago
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I just read an article where the author is being crazy transparent about his finances. He burned $1.4M and today invested another $1M. The entire $2.4M was taken from another business of his.
see here: http://startuplabs.com/blog/today-im-going-to-invest-1m-into-finic-inc/
My question - Is it a good idea to invest cash from a profitable business into an unrelated startup? I currently run a consulting business and am thinking about investing part of cash I earn into a startup idea. If the startup is unrelated - isn't this a really bad idea? There is a discussion here talking about building a product within a consulting business which is unrelated to the business itself, they had to shut it down because of amount of friction it caused and the focus it took away from the team: http://mixergy.com/interviews/bryan-zmijewski-zurb-interview/ Curious to hear everyones experience with this. |
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Assuming access to capital, companies should invest in all projects with a positive Net Present Value( the net of money coming in discounted for inflation and money going out, including interest expenses) greater than zero. Simply put... if a project makes money you should invest in it if it doesn't you should not.
Taking away the assumption of access to capital, companies should take projects with the highest Internal Rate of Return( essentially the return on investment) for a project.
It seems that you do not want to/are not capable of using external capital(ie taking a loan or venture capital) so we will consider the IRR method of choosing projects.
If you will receive a greater return from building this product than extending another line of your business, then that is the right thing to do with the money.