Pros And Cons Of Venture Capital Finance

Raising Venture Capital

Venture capital finance has emerged as a saviour for the current startup ecosystem around the world. When no other financial organization shows the courage to invest in your seed-stage business, it is a venture capital firm that dares. No wonder, you too must have a unique plan so as to attract a VC firm.

While it is all about raising fund at the end of the day, it is also equally important to select the most suitable funding option. You never know a wrong option might instead waste your time and check your company’s growth. Here are some pros and cons of venture capital financing that can help you decide whether or not to opt for this source.

Venture Capital Finance

Pros

●        Capital

It is undoubtedly the most powerful source of capital that your startup can get access to. The amount of capital you get from a VC is, any day, higher than what you receive from other investors. Moreover, VCs remain with you till the end and hold your hand during crisis periods. 

●        Additional Services

Apart from offering capital, venture capitalists also offer many value-added services such as offering guidance, sharing knowledge and contacts, etc. They also use their contacts across the industry to help you build successful strategies.

●        Credibility

Raising venture capital is a great achievement. Having a VC by your side gives credibility to your business and helps it to attract more investments. Typically, venture capitalists prefer to rely on startups that have already raised capital once.

●        No Repay

Unlike loans, venture capital finance is solely profit oriented, i.e. you need not repay the capital after a fixed period. Rather, the investors wait for the time when your company starts earning revenues. Once you have made enough profit, they take their share of the profit and exit the venture.

Cons

●        Danger of Losing Control Over Your Business

Your control over your business often remains a major concern with VCs constantly eying the small and big decision of your business. While they do this with an intention to help your startup make the right move, it often results in a loss of control on the part of the owner. If you are too conscious about your ownership over your startup, you may need to think twice before approaching a VC.

●        Expensive Funding Option

Venture capital requires you to spend a lot of money in the initial phase like hiring a financial lawyer, hiring a financial advisor to assist you in valuing your business, creating your leadership team, etc. You have to ensure that you have enough liquid cash to pull out these phases successfully, or else, you may consider some other funding option. 

●        Challenge For Seed-Stage Startups

Typically, venture capitalists like to invest in growth stage as the risk associated is comparatively lesser at this stage. And even if they invest at seed stage, it is when they find a unique plan with immense market potential. Naturally, the challenge is highest for seed stage startups.

Conclusion

Once you raise venture capital successfully, it is all worth the effort. It is like reaching that very first milestone which makes achieving the other ones easily. No matter, you must consider both the pros and cons carefully before taking an action.

For more information on venture capital finance, feel free to get in touch with us at MergerAlpha.

Good luck!