The Pros And Cons Of Asking For Venture Capital And Using It For Entrepreneurs
Obtaining capital is one of the most difficult challenges that new business owners tend to face. Some new business owners and entrepreneurs reach out to venture capitalists to get help for launching their businesses. However, before you seriously consider using this kind of investment for funding your business, it is important that you make sure that you thoroughly understand both the pros and cons first. In this article we will be discussing some of the major advantages as well as disadvantages of using venture capital for launching your business.
Pros Of Obtaining Venture Capital Funding
1. The Money Is Yours To Keep
The biggest advantage that you get from having a venture capitalist or angel investor provide your business with funding is that you get to keep the money. With a bank loan, you must pay it back whether your business succeeds or not. However, you aren't required to pay an investor back. So if your business goes under and you are not able to continue, you won't have any kind of investor debt to pay off. That means that there is much less personal risk involved since you won't need to put up any kind of collateral against whatever funding you get.
2. A Venture Capitalist Can Be An Asset To Your Business
Another big advantage you will have when you obtain an angel investor or venture capitalist is that they can be very key assets when it comes to getting your business started. When you are first beginning with any kind of business or venture, you will want to have the right connections to help you. In many cases, having the right connections might mean the difference between succeeding and failing. That is why having an investor that fully backs your business can be an extremely important asset since they have the ability to put your company into a position so that it can succeed right from the very start. A venture capitalist can introduce you to all of the right organizations and people so that your business can really get going. In addition, they can help get your business up to the next level.
3. Valuable Business Consultations
Another really big advantage that you will receive when a venture capitalist funds your business is that they will usually be available to provide you with business consultations. You will be getting all of the help and advice that you need from very experienced professionals. If they are not able to personally provide you with the advice that you need, most likely they will have business consultants available that can assist you. That will be a huge advantage for your entire company and business as a whole since you will have multiple business people backing your business and available to help make sure you succeed. Keep in mind that an investor will have a vested interest and will want your business to succeed. Therefore, they will do whatever they can to make sure your business is successful. This will ultimately provide them with a healthy return on their investment in your company.
Cons Of Obtaining Venture Capital
1. Investors Will Have Equity In Your Company
Anytime you accept funding for your business, it involves giving away part of your equity. Although you won't be required to repay the money you receive from venture capitalists, there are lots of strings attached with the funding you get. Essentially investors will be giving your business money in exchange for part of your company's equity. What that means is that you will have fewer shares that you own in your company. It also dilutes the number of shares you will have available in the future to offer shareholders of your business. In addition, if you end up giving away enough shares and equity in your business, the investor might obtain the right to make various controlling decisions about your company and how the business is run.
2. Your Company Might Not Be Ready
Many new business owners attempt to grow too fast. This can be a big mistake. If you accept outside funding before you're able to determine how to really make your business profitable, you might set your company up for failure before you even have an opportunity to get started. One of the main reasons that so many startups fail is attempting to expand and scale too early. So accepting venture capital is not always the best thing for every startup company to do.