If you’re in the position of having to decide whether or not to accept venture capital, then congratulations, you’ve already made it much farther than many start-ups. You almost certainly have some questions about what this will mean for the future of your company. But even if you’re not there yet, it pays to do a little research beforehand. With that in mind, we’ve brought together some of the major advantages and disadvantages of accepting venture capital. It’s a big step forward, so make sure you know what you’re getting into.
Pros
A Cash Infusion
This is a fairly obvious plus to accepting venture capital, but it’s worth elaborating on here. You will receive a huge influx of cash that you can use to keep the company running, hire new talent, and take things to the next level. This is an investment, not a loan, so it feels like you’re getting free money. You aren’t, but we’ll get to that in a minute.
It’s All About Who You Know
The other great part about accepting venture capital is that your venture capitalists now have a stake in helping your company succeed. That means they’ll likely be introducing you to their peers, looking for new investors, and generally doing what they can to make use of their connections in order to help your business.
This can even work indirectly. Another investor may not know your venture capitalist personally, but they will see that you are now connected with them. That first investment can lead to more investors eager to get a piece of the action.
Cons
New Expectations
Remember, it really isn’t free money. Your investors want to get their money back–and then some. That does mean that they’re invested in your success, but that can be a double-edged sword. You now have someone to answer to, and that shift in power can have effects on your business and your culture. There may be new pressures that simply weren’t there before. In fact, there almost certainly will be. For some people, this is fine–just the price of doing business. Others have a real problem with it.
Diminished Profit Share And Control
Your investors will now be reaping part of your profits, potentially quite a significant portion. That may be worth it to you, or you may realize that your business no longer feels like your own. In the future, there may plans to sell the company or take it public in an IPO. If this company is your baby, then keep in mind that you’ll be losing a significant amount of control over what happens to it in the future.
The key is to do your homework beforehand. Who is this person or firm that’s offering to invest in your company? What is their track record? The choice to accept venture capital may help your company to grow in a way that nothing else could, but you can easily lose control of the business you started.
If you have a new product idea, but you aren’t sure where to start, then contact Pivot. We’ve helped businesses just like yours bring their ideas to life.
