4 Reasons You Might Not Want to Be VC Funded by Marc Prosser

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

Questions answered:

  • What makes a startup a good candidate for VC funding?
  • What are the cons of raising venture capital?

Summary:

  • 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.

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