Friday, 20 November 2015

Advantages And Disadvantages Of Venture Capital Funding

Venture Capital Funding

Raising a business is like raising a child. Both demand dedication, love, sincerity, effort and time. However, raising a business often calls for raising capital which comes with huge responsibilities as you are expected to delight your investors with huge profits after a certain period. As a first-time entrepreneur with a seed-stage startup, you may find it very difficult to convince banks or other financial institutions. So the common options you are left with, typically, includes friends and family, incubators, crowdfunding and venture capital funding.

While the other funding options do not require much forethought, venture capital funding do require a good amount of homework as it comes with a lot of terms and conditions which might not be always favorable for your startup. So to determine whether or not it is a suitable option for you, you can read the advantages and disadvantages of VC funding mentioned below. If you think the points under disadvantages don’t really bother you, then yes, you must chase a VC!


Advantages Of Venture Capital Funding

        A venture capital firm can give you access to maximum amount of fund that no other investor can think of.
        You can raise your business with other people’s money.
        You can not only grow your business but also expand your company with venture capital.
        A venture capitalist can add great value to your company by investing in it.
        They offer many other additional services apart from capital such as knowledge sharing, offering guidance and mentorship, sharing valuable contacts and expanding your business network.
        You get introduced to many influential people in the startup eco-system who can offer your new ideas on business building strategies.
        Venture capitalists, typically, have years of experience in managing finance and business. They are always available to offer you proper guidance on how to utilize the fund to gain maximum profit.
        Once you manage to partner with a VC, finding another VC becomes easier.

Disadvantages Of VC Funding

        There is huge competition in the VC industry. Out of 100, a VC firm usually selects only 2 or 3 startups for investment.
        The investment tenure is typically, 3 to 5 years after which investors prefer to exit with their share of profit. You have to ensure that you startup can manage to make that much profit within the time-frame.
        Legal and accounting fees are often very high. If you are aiming for a small-scale business, you must give a second thought to VC funding.
        A detailed business plan along financial projections are a must. The procedure is comparatively lengthy and complex, so proceeding without proper planning can cost you hugely.
        VC companies are usually actively involved in your company’s decision-making process so there consent is a must at every step.
        They usually offer the capital in exchange of a share of your ownership in the company. If you are too concerned about your control over your business, you should better look for some other funding option.
        There are chances of your losing control over the business if you cannot manage it properly.
        Watch out for your share of profit percentage at the end. 


So these are some of the major factors, typically, associated with raising venture capital. Some are really exciting while some are matters of serious concern. At the end of the day, it is all capital that brings in capital, i.e. you must have enough money to jump into the campaign. And even before money, what you need is a highly innovative business idea that carries a much-awaited solution for the target customers.

If you have a unique idea, a smart and talented management team, an innovative business model, a scalable market, a strong value proposition, an interesting pitch and enough capital for your campaign, you are quite likely eligible for venture capital. So explore your strengths and get ready for the most suitable fundraising campaign! Also, do share with your experiences with VC raising.

For more information on venture capital funding, feel free to visit Merger Alpha

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