Although it’s a good feeling to be successful at raising a round of funding for your startup, there are times when you actually need to turn down external funding and look inwards or continue with the funds currently at your disposal. Raising venture capital can sometimes be a bad move, this is because the more money a startup has at the onset, the greater its likelihood to fail. Don’t take our words for it, this theory is shared by a highly reputable venture capitalist and a co-founder of Union Square Ventures; Fred Wilson, who have invested in global businesses like Twitter and Tumblr at their initial stages. So, before you begin pitching to potential investors, think deeply if venture capital is actually what your business needs at this particular time. Below are four reasons why you might not want to be venture capital funded;
You give up some control of your company:
What many startup founders don’t know is that when you receive venture capital funding you ultimately take on a new business partner. This waters your control power and your new partners have a strong say in how the business operates. Although these investors have a huge wealth of experience and very important contact in your industry, your opinion on how things should operate may differ sternly. While they may want you to sell when you get to a particular stage, you may intend to hold on to your company until you retire.
If you need money and don’t mind losing some form of control, then venture capital funding would work for you. But if you still want to have complete control over your business and all you need is money, then a bank loan will serve you better.
You don’t need funding:
If your business is doing well on its own and it is growing at an appreciable pace, then chances are you don’t need venture capital funding. Venture capital fund come with several strings attached such that you may end up not being in your advantage. The firm may go ahead to dictate to you how they want the money spent and may even pressure you to change direction that you intended for your business. You may find yourself engaged in so many disagreements with your VC that it may lead to an untimely end to your business.
The outlook of your business will change:
Typically, a venture capital firm has one thing in mind; profit, lots of it. While the VC is focused and obsessed about generating other sources of income, you as the owner may have a somewhat different agenda. It may be discomforting to you when you see your business grow too fast beyond your comprehension. You may be urged to make certain changes before you are really ready to do so.
A practical example will be the Whatsapp story. While the initial creator Jan Koum intended for the app to be completely ad free, Zuckerberg, who has a size-able ownership in the company insist on running ads on the platform to make money.
You lose valuable time and energy:
It take a lot to get a business off the ground, particularly those first 24 months. Aside from perfecting your product or service you must also pay attention to other equally important aspects of the business, such as hiring, marketing, forecasting and much more. If you are to combine the above described activity with pandering to potential VCs you may taking on more load than you can actually carry.
It may be more beneficial to convert that energy into searching for the right partner. That way you would have built your customer base while raising revenue in the process.
Although venture capital offers a rare opportunity that would boost your bank account and allow you to grow your business very rapidly, but they come with certain caveat that you should be aware of. Before you opt for any financing option it is important that you consider it properly, ensuring it is the right one for you.