Venture Capital – Advantages and Disadvantages for Your Business
With entrepreneurship on the rise and a number of startups being launched every single day, venture capital has lately been gaining popularity. Simply put, you are running your business with venture capital if you have convinced a private firm or perhaps an individual to fund the implementation of your idea. It is a particularly phenomenal course of action for someone who is new to the business world and is looking for a break. Pretty much like everything else, however, there are a few benefits and drawbacks of opting for venture capital. The scope of this article is to inform you about the venture capital advantages and disadvantages so that if you are planning to take the plunge, you can make an informed decision.
Here’s What You Get to Enjoy with Venture Capital
A few of the prominent advantages associated with venture capital are mentioned below:
- The first and foremost benefit of opting for venture capital is the immediate availability of money. One of the major hurdles in taking a business from a mere idea all the way to its implementation is the lack of funds. It won’t be wrong to state that a business idea without the required financial resources is like a car without an engine. Being a newbie to the business world, it is likely that you won’t find raising funds to be the easiest task. And that’s why venture capital is an extremely fascinating option.
- Another major benefit is the minimization of risk. Since it’s the venture capitalist putting in the money, you reduce the risk of yourself losing money you don’t even have. Upon successful implementation, the returns of the investment can be as much as 50 to even more than 500 percent. This is the very reason why it is possible to convince the venture capitalist with an inspiring or promising idea since they know that the profits could be huge if the implementation is successful. It ends up being a symbiotic relationship where you and the capitalist get to reap the benefits for an indefinite period of time.
- Lastly, choosing venture capital is a commendable idea since it’s not only the money that you are hoping to get – you also receive a third-party expert opinion on your business idea. Venture capitalists are firms or individuals which have been in the market for a while and know the ins and outs of the business world. Therefore, it is highly likely that before investing in your idea, they may even work with you to further improve it and increase your chances of successful implementation and greater profitability. While they may do this to ensure they are putting their money on an idea that is likely to succeed due to a great plan and valuable insights, you ultimately benefit too.
Here’s What You May Not Like about Venture Capital
As mentioned earlier, there are a few disadvantages associated with venture capital as well. Let us highlight a few of them for your better understanding.
- The primary disadvantage that you will have to deal with is that you will no longer be the sole entity that has control over the business or a say in its operational matters. By investing, the capitalist is essentially holding a stake in your business that gives them the authority and power to manage and direct certain operations how they see fit and have a say in crucial matters. The loss of independence may feel suffocating to an entrepreneur because, although the suggestions and actions of the venture capitalist may put your business on the path to financial success, you may lose the true essence of the idea that you had when you started off.
- There is no argument that listing is an immediate priority for venture capitalists. They would much rather have their stake offloaded instead of having to wait for it for years or even months. This significantly increases the chances of undervaluation of the company. Remember, it is imperative to go for listing at an appropriate time. Failure to do so is destined to undervalue the business which is a nightmare for the entrepreneur who wants to groom their business like a mother does her baby. Such a conflict of interest combined with the lack of independence as mentioned above can turn out to be quite frustrating for the business owner.
- Lastly, it is not always a convenient task to convince a venture capitalist of the greatness of your idea and obtain the funds for the implementation phase. Having years of experience in the market, a capitalist is well-aware of the risks associated with any particular investment and how the majority of startups wrap up in just a few years while only a handful of them end up turning into an enterprise. Under such circumstances, convincing someone to put a huge chunk of their money into an idea that may meet the same fate as hundreds of others may prove to be difficult, to say the least.
As evident from the information mentioned above, there are a few fascinating benefits that you get to enjoy if you opt for venture capital. On the other hand, the negatives are quite scary too. This is where your judgment call comes into the picture – you need to take into account all the information you presently have in front of you, as well as rely on what your heart tells you. You need to thoroughly evaluate the pros and cons of venture capital before finalizing your decision. The more time you invest in the evaluation of the venture capital advantages and disadvantages in your particular context, the better your chances of making the right decision and getting the most out of the funding.