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Why are investors still spending money on us?

This borders on confessional, but it really confuses me too much to ‘confess’: why are they throwing money at this place I’m at now?

So, my company has been around several years (I’m not a founder). Since the initial funding round of just under $20M US, we’ve managed to spend just about all of it and our gross revenues have never exceeded 15% our operating expenses. I think lifetime earnings don’t even match a year’s expenses.

We might be a little different because we don’t have as much VC/captial management money as we have investment from a large corporate entity. The same group has funded us through one siginificant pivot. Our products offer good ROI, but they’re niche market B2B offerings. Our up-and-coming offerings are similar in nature.

There’s no indication that our primary investor has interest in acqui-hire or poaching staff. They do, however, continue to fund us! Why? I can understand waiting a few years but even best-case from our own reports to investors doesn’t make us a much better investment than a bank CD.

I’ve actually started wondering if we’re not just some weird tax-write-off or overseas accounting loophole, or that we aren’t already a de-facto subsidiary of this investor, and our “products” are just window-dressing while they use our infrastructure for their own in-house use. But really, the company feels like it’s circling the drain but keeps getting lifesavers thrown at it.

I know it’s silly to complain that “we have crappy sales and no ‘killer product’ but people keep giving us money”, but still. Has anyone else been at this point? Is this normal?

    • OP here. After looking into it a bit more, I’m starting to think that our real “customers” are the investors and their subsidiaries, and they treat us more like a closely-managed vendor or contractor than an “investment”. We’ve met a bunch recently with companies that are outright owned by the investor, but aren’t actually providing sales money.

      My suspicion is that they keep us at arm’s length because it works as a carrot-and-stick routine. That, and it’s cheaper to throw some money our way than onboard us (they’d have to raise salaries, bring on managers, deal with overseas stuff, etc.)

      I’m still wondering how common this is, for larger firms to pretty much indenture-servant smaller startups like this.

      Reply

  • West Coast or East Coast?

    Just because people have money to invest, doesn’t make them smart money. Non top tier VCs are no better and there are different incentives for short term growth (to dump to a different fund) vs long term success.

    Very little money is smart money – although when you find it, you’ll see it’s really really smart.

    Still up to the company to perform though.

    Reply

  • Investors are human and sometimes they are afraid to cut their losses as well. Corporate investors are less experienced at throwing in the towel.

    On the other hand you might be right and it could be a nice tax write-off or other shell game.

    Reply
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