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Skin in the game: A common question about entrepreneurship is the level of commitment from its founders and the core team. The same questions are portrayed throughout the investment rounds, initial customer acquisitions and even initial government grants.

The last few experiences of my career have been primarily in entrepreneurship, ideation, fundraising and acquiring initial customers. The journey naturally is fraught with multiple challenges, each one more daunting than the other. It is amazing though to see how many times an entrepreneur is questioned about their investment. Most investors want to test your commitment as a founder. If you put your own money, it shows confidence to the investor that you trust in your idea. Also, there’s an unwritten rule that you’ve put the money where your mouth is.

What does skin in the game mean?

“Skin in the game” is a phrase coined by author and investor Nassim Nicholas Taleb, referring to the concept of having a personal stake or investment in a particular venture or situation. It means that a person or entity has something to lose or gain based on the outcome of their decisions or actions.

In business and investing, having “skin in the game” indicates that individuals or organizations have a financial or reputational risk tied to their decisions. It implies that they have a personal interest in the success or failure of a project, investment, or endeavor. This personal investment is believed to align their incentives with the desired outcomes and can influence them to act responsibly, make more prudent decisions, and take ownership of the consequences.

Having “skin in the game” is often seen as an important aspect of credibility, trustworthiness, and commitment. It demonstrates a level of conviction and seriousness in one’s involvement, as well as a willingness to bear the potential consequences of their choices.

What factors show your skin in the game as a founder?

One may argue that as an entrepreneur, we are giving up the opportunity cost and practically working for free. That alone however, doesn’t go too far when it comes to establishing confidence in the initial seed investment. We will need to do a little more to impress our commitment to the business.

This however, doesn’t mean that you cannot be an entrepreneur without any investment. I am sure there are some amazing examples of those out there. It does however mean that it is a slightly more challenging scenario.

Investment: Skin in the game

I recall my initial investor meetings. In every meeting I have been to, I have been asked about my commitment to the business and the impact a monetary value has had in these conversations.

We sure had won some initial grants to take the idea further, but after a certain stage, the grant alone did not provide an adequate level of confidence to the investors. It needed a little more than that.

One can argue that the amount of personal investment is very small compared to the amount actually required to run the business. I completely agree to this rationale. But that doesn’t obviate the impression your own investment can create in the business.

This might be a bit of an unwritten rule, but your own investment does go a long way.

A little more than skin in the game

As an entrepreneur, your investment is more than the skin in the game. In the early days, you’re investing all your emotions, aspirations and hopes into this dream. Although it feels unfair to be judged based on your monetary investment, unfortunately, it has an impact on fundraising. Maybe you have better chances for fundraising through specific groups or VC firms etc. However, if you’re depending on independent early-stage investors, this can make a huge impact.

In addition to that, we will need to think about opportunity cost, time involved and most importantly the personal sacrifices we have to make. Although these sounds small during dictions making, I would like to point the focus on personal sacrifices on time. Entrepreneurship does take a huge part of our time and emotions. It is never easy to balance these and personal life does take a natural hit and so do relationships.

I know it might sound easy and stupid of me to say that we should balance everything. But we really should. The time and money can come back, personal sacrifices tend to be a little more expensive than that.

Risk Reward Appetite

From an entrepreneurs perspective, we always talk about the risk reward appetite. As far as the investment philosophy goes, the rewards are higher where there is smaller competition. However, the risks are also exceedingly high.

Naturally they go hand in hand and most often very difficult to separate the two. If you want the big reward, I am afraid you are stuck with the risk as well.

One approach can be to temper the risks being taken. I like to talk about agile processes a lot. The biggest risk of large projects is that it takes forever to know the outcome. In our case, it is mostly about how customers react to a product/solution.

If it is bad, no matter how much investment we make to sell, it will back fire. The most basic rule is to ensure that we provide a product or service of value to our customers

Having said that, we need to check our customer’s willingness at every stage possible. We can also extend the same to investment too, instead of releasing all funds at once – it can be sensible to associate investment releases to milestones. They can go a long way in managing expectations both from the startup and investment board.

Customer confidence

The success of a startup and entrepreneurship comes down to customer confidence. If we are able to convince and provide constant value to the customer, the rest are fairly straight forward.

It is a central part of startup to build this confidence. This can be done in many ways – affiliations, grants, brand associations, awards and recognitions. The startup world prides itself in the immensely powerful network out there to help us out. If we can tap into this network, it can open up floodgates to immediately start scaling the enterprise.

Well, nothing about as startup is easy. And it is true, we don’t just have our skin in the game – but our entire body in the game. As much as it is important to succeed in a startup, it is also very important to protect ourselves.

There is no point in achieving massive success or failure in one segment while compromising a lot on our own lives. It is a hard balance, but hey – there are people out there who have done it. Maybe time for us to take inspiration from them and find this hard balance.