TL;DR - The disadvantages of raising venture capital
Helpfulness - 3
Tags - cons of venture capital, external funding, outside capital, outside investment, venture capital, VC funding
- What makes a startup a good candidate for VC funding?
- What are the cons of raising venture capital?
- Many venture capitalists see a startup as a good fit for VC funding if it can provide “10 times minimum return within 10 years”.
- 4 Reasons why founders might not want to raise venture capital:
- Raising VC requires founders to give up some control of their companies.
- Taking on VC funding also means taking on business partners; venture capitalists have a say in how startups operate once they invest in them.
- Many VCs try to position startups to sell regardless of founders’ visions so that they can get their return on investment quickly and move on to other startups.
- Loans could be a suitable alternative to VC funding if founders do wish to give up some control of their businesses.
- Founders may not need funding after all.
- Since venture capital comes with so many strings attached (voting rights, interest, etc), it is not to one’s advantage to raise VC funding if his/her startup does not need it.
- VC funding sometimes makes startups unrecognizable.
- Most VCs’ aim is to generate more revenue streams, but founders may have other agendas.
- Founders may be urged to expand their teams, office space, or product line before they feel ready to do so to satisfy VCs’ interests.
- Some VCs want startups to be acquired by mega corporations, who can completely change founders’ startups, boot them off the team, or dissolve the startups completely.
- For founders who are entirely concerned with making profits and are willing to give up their initial visions, VC is a suitable option.
- Pursuing VC funding requires a lot of time and energy.
- Managing a startup requires a lot of time and energy, especially in the beginning stage; founders have to tend to many important tasks (perfecting their products or services, marketing, hiring, forecasting, etc).
- Pandering to VCs is arguably as demanding as starting a business.
Follow up links:
- Raising funds for startups, https://www.powerhomebiz.com/financing-a-business/finance-a-business/6-things-you-most-likely-didnt-know-about-how-to-raise-funds-for-business-start-up.htm
- Identifying which business might be a good fit for VC funding, https://www.forbes.com/sites/joshlinkner/2012/08/23/5-reasons-why-your-dream-business-is-a-venture-capitalists-nightmare/#2d03bb8f37a6