To VC or not to VC, that is the question.

Let’s discuss Venture Capital and weigh the pros and cons to using that as means to start a company. I’m always hesitant when I hear about venture capital, but should I be?

There are many different ways to start and fund a company.

Stories of bootstrapping and the good ol’ “roll up the sleeves” methods are always inspirational, but going all the way from nothing to something can oftentimes be a difficult task in growing a business. Using more traditional methods to startup such as crowdsourcing (such as kickstarter), any form of traditional debt financing, or even angel investors can provide much more flexibility for a business - at the cost of potentially less risk-driven incentive to provide direction.

So what makes venture capital different, and what are the pros and cons?

Here are some of the reasons to consider VC:

1. Financial Boost: Venture capital can provide a significant injection of funds, allowing your startup to scale rapidly and compete in the market more aggressively. This financial backing can support product development, marketing campaigns, and operational expansion.

2. Expertise and Mentorship: Beyond just funding, venture capitalists often bring valuable experience, industry connections, and mentorship to the table. Their insights can guide you through challenges and help you make strategic decisions that drive growth.

3. Networking Opportunities: Partnering with venture capitalists connects you to a network of potential customers, partners, and collaborators. This can lead to partnerships that accelerate your business's development and open doors to new markets.

4. Speed to Market: With ample funding, you can accelerate your product or service launch, seize market opportunities, and gain a competitive edge. Venture capital can help you establish a strong presence before competitors catch up.

5. Validation and Credibility: Securing venture capital funding often lends credibility to your startup. It signals to customers, investors, and partners that your business has undergone rigorous due diligence and possesses growth potential.

Here are some of the things to be cautious of:

1. Equity Stake: In exchange for funding, venture capitalists typically require equity ownership in your business. This means relinquishing a portion of control and potential future profits. Carefully consider the trade-off between funding and ownership.

2. Pressure for Growth: Venture capital comes with high expectations for rapid growth and profitability. This can lead to immense pressure to meet aggressive targets, potentially compromising your long-term vision for short-term gains.

3. Loss of Autonomy: As you take on venture capital, decisions may become collaborative, and your freedom to pivot or make changes could be limited by investor preferences.

4. Exit Expectations: Venture capitalists often expect a significant return on their investment within a specific timeframe. This could push you toward an acquisition or IPO before you feel your business is fully ready.

5. Mismatched Goals: Misalignment between your startup's goals and the venture capitalist's objectives can lead to conflicts down the road. It's crucial to find investors who share your vision and are aligned with your business strategy.

Something else to keep in mind is also that typically, one must provide much more proof of concept and even have their business in a profitable place before they can approach Venture Capital with an idea. They want to make sure that if they’re able to assist with scaling a company, that they have less risk of losing any of their investments - they’re here to grow also.

If you’re armored with only a concept at this point, it may be easier to continue focusing on your product and getting those initial sales - just as Michael Masterson had mentioned in his book “Ready, Fire!, Aim” - and make sure that you have an efficient process that is making profits.

Venture capital isn’t for everyone, but for those that need additional support or direction through the connections that venture capital can often provide - it is always an option.

-SZ