It is a lot of hard work to secure venture capital funding and there are several reasons why you might want to avoid it. If your market is big enough that you can generate a ten-fold increase in investment within a decade, then you are a good candidate for venture capital funding. Start looking for funding elsewhere otherwise.
The following are reasons why you might not want to be venture capital (VC) funded.
You give up control of your business
You also take on business partners when you take on VC funding and a lot of startup business owners are not aware of that. Venture capitalists buy equity in your brand which means they now have a say in how you operate.
While those investors have deep experience and contacts in your industry, they also come with their opinions on how you should do things. You might want to run your startup until you retire but a venture capitalist probably is going to position you to sell so he or she can get his return on investment quickly and move on to the next startup.
Think of it like this: If you want to bring on a partner and money, venture capital is a good fit. If you just want the money, go for a traditional loan.
Before you agree to be funded by anyone, spend plenty of time doing your research and make sure you clearly understand how involved the investor will want to be, as well as their company moving forward.
Look for a venture capital with experience in helping businesses grow and those who have contacts to help you secure new business deals in your industry.
You don’t need funding
One day an investor may offer you to give you another round of funding. You might consider it because it is good to get financing even if your business is running smoothly in case something comes up.
However, venture capital comes with a lot of strings attached. It is not really to your advantage to take funding if you do not need it. The VC firm can tell you where and how you can spend the money and pressure to take your business in a different direction that you do not want to go.
If you can continue to operate your business successfully without taking funding, then do it. If you really want financing, consider taking out a business loan instead.
Your business may become unrecognizable
A venture capitalist is in the business to generate revenue streams but you as the owner might have other ideas. Your business may grow faster than you are comfortable with if you have someone primarily concerned with making money off of it. You might be urged to expand your staff, the space of your office, or your product line before you are ready.
A venture capitalist might want you to be acquired by a mega corporation who could completely change your startup, kick you off the team, or completely dissolve it. There have been many founders of startups that feel they sold their soul to acquire venture capital and have regretted it later.
If you are in the startup game to make money and let go of the vision of your business then venture capital might be right for you. If you want to continue to move it completely in whichever direction you want, then seek funding elsewhere.
You give up time and energy
Getting your startup off the ground takes a lot of time and energy. You have to focus on a lot of aspects of the business including perfecting the product or service, marketing, hiring, forecasting, and much more.
Instead of pursuing VC funding, you might be better off finding the right customers. You can build your own customer base and generate revenues at the same time instead of acquiring VC money.
If your business can rely on customers and profits for funding, then go for it. A solid customer base puts you in the driver’s seat. If you need to get more funding to scale your business later on, you will be in a great position to acquire a loan.
The Bottom Line
Venture capital comes with certain strings attached that you need to be aware of, even though it provides an opportunity to significantly boost your bank account and invest in things that will help your company grow quickly. Before you make any financing decision, think it through carefully and make sure that it is the right one for your startup business.