While venture capital is largely seen as the most attractive option for startups, it may not be the best path for you… and that’s OK.
Before seeking VC investment, some questions to ask yourself include:
- What are my financial goals?
- How long do I want to be doing this for?
- How much time in a week am I willing to commit to this? Am I ready to give up my full-time job to grow this business and pay myself (potentially) less?
- Am I willing to give up ownership in my business?
- Am I open to active input from a VC?
- What am I motivated by? A mission? Impact? Maximizing returns for myself and my shareholders?
These are all questions you need to consider before engaging with VCs. If you decide it’s the right path for you and it turns into an investment, always remember that the VC is betting on you to exit your business to generate a return for their fund. You must be aligned on that. Scaling a business to an exit is not for the faint of heart. Your investors will always push you to scale harder and faster, often encouraging you to take on more capital (dilution) to do so.
All sources of capital have pros and cons. Below are some to consider with respect to VC.
- Money: The capital to scale and exit to maximize returns for you and your investors
- Business Support: Access to advisory and operational resources in your area such as general business advice, legal, tax, talent, etc.
- Connections: VCs and your board typically have strong networks to the business community for potential customer referrals and partnerships
- Network: You will be part of a portfolio of other companies you’ll be able to work with and learn from
- Loss of Control: The size of the investors’ stake in your business could determine how much say they have in shaping the direction of the company
- Dilution: Raising money will dilute your ownership in the business and you may have to continuously raise more money to scale
- Fundraising Challenge: This process requires a lot of time and effort to craft an investor pitch, go through diligence, work through legal, etc.
Before taking on a dollar of VC investment, it’s very important to reflect on what your goals are and define what success looks like for you. Remember, there is no right or wrong path with this, and all funding paths come with their own list of pros and cons.