Prominent Advantages and Disadvantages of Venture Capitals
More often than not, the unavailability of cash or funds is the first major obstacle faced when one wishes to bring an amazing idea to life and turn it into an ongoing, profitable business. Under such circumstances, approaching venture capital firms sounds like a commendable idea for business startups. What needs to be understood, however, is that in order to make an informed decision, it is important that you are familiar with the pros and cons of venture capital. Taking this into consideration, we have taken the liberty of highlighting some venture capital advantages and disadvantages in hopes of helping you understand them better.
Venture Capitals Pros
The first benefit of opting for venture capital is that the money you receive for your business startup is entirely yours; you can put it to use to successfully run the venture. If you succeed, the investor earns a significant amount, but if you lose, there is no obligation on you to return all or even a part of the investment. In other words, if you win, it’s a mutual victory, but if you lose, it’s entirely their loss in terms of money.
Raising funds and putting the resources together is never an easy task. If you are looking to enter a fast-growing industry, such as that of technology, it is required that you quickly raise funds and resources without which it would be impossible for you to even enter the market. The more you delay your entry, the higher are the chances of a competitor bringing the same or a somewhat similar idea or product to the market. With venture capital, you can ensure that you don’t lose that opportunity. A constant and sufficient influx of funds is guaranteed with such a partnership, and that is your first major step towards victory in the business market.
There is no argument that connections and links are vital to making your business successful in the fast-paced era of today. Since venture capital firms have been operating in the market for a while, it is a given that their business or professional relationships constitute a huge network. Once you enter such a partnership, you get to expand your business connections, have yourself introduced to the professionals, grow your business network, and build a name for your startup in very little time. With the useful connections of the firms and their interest in your business, you would be provided with the best technical support to make your business flourish.
Unfortunately, however, nothing comes with benefits only. In the same way, opting for venture capital has its own cons which must be weighed against the pros before you decide in favor of it. Let us inform you about a few of the prominent disadvantages that you may have to experience if you opt for funding through these firms.
It is evident that once you agree to a partnership with a venture capital firm, you will essentially be surrendering quite a bit of control to them. The amount of control depends on the equity that has been invested – the greater their investment, the greater the control that they would have. This means that, more often than not, you have to surrender a certain amount of decision-making power to the firm, and they can take the business forward as they see fit.
In addition to this, if you put in an extreme amount of effort into raising the funds and resources you need for your business, you develop budgeting skills along the way and learn from the highly professional and experienced individuals whose expertise you utilize for such purposes. However, if the entire funding has simply been received from a venture capital firm, it increases the risk of losing discipline when it comes to business expenditures. It will take a longer amount of time for you to develop the budgeting skills which are an indispensable component of long-term business growth.
Last but not least, since you are no longer the only manager or the authority with the power of making a business decision, opting for venture capital increases the risk of conflicts, misaligned priorities, and managerial distractions. It is a common sight to have a venture capital firm set priorities, take business decisions, and go about management in a manner that doesn’t align with your expectations or your plans for the business. Under such circumstances, the overall operations of your business can suffer greatly.
Now that you are familiar with some venture capital advantages and disadvantages, you are in a better position to make an informed decision regarding whether it is the way to go for you. It is imperative that you thoroughly consider the pros as well as the cons before finalizing your decision. Although it will take time and effort, a well-informed decision is always destined to bring about positive results and avoid unexpected outcomes. In simpler words, while there are major benefits associated with venture capitals, there are also a few shortcomings that are to be considered and planned for before the option is availed. Once you have planned taking everything that may prove to be a disadvantage into account, you will be able to reap more benefits and get the most out of the decision.