Factors to Consider When Seeking Venture Funding
One of the biggest challenges of expanding your startup is coming up with the necessary funds to expand. Venture funding is one of the best ways to acquire this much needed cash. The time for venture funding is now, as venture funding recently skyrocketed in popularity in recent years. However, not everyone is entirely familiar with how venture funding works and this may lead to struggles down the road. Venture funding is a type of financing that is typically provided to new smaller businesses that are deemed to have a high potential. The investor provides capital to these firms in exchange for equity and partial ownership of the company. This can be very risky as there is no guarantee that the business will succeed even with an influx of new capital. In fact, as much as three-quarters of venture backed startups fail. As a business owner, how should you go about deciding which venture capitalist to side with and prevent these failures? Here are some of the biggest factors you should look at when seeking venture funding.
More Than Money
While at first glance the best deal seems like the one that offers the largest amount of money, this isn’t always the case. The best deal provides the best economic value for you. This means acquiring the maximum amount of capital while giving up the least amount of equity possible. Yes you want to acquire capital, but keeping control of your business is equally as important. In addition, some venture capitalists can help you in other ways then just providing capital to your business. Some venture capitalists have national and global reach, and can expand your business’s market. These venture capitalists typically have friends in high places and will allow your business to network and expand rapidly. Sometimes, the amount of opportunities that come with a venture capitalist are even more valuable than the money they offer. That is why it is important to weigh all aspects of the deal, not just the amount of money offered.
One of the biggest mistakes a business owner can make is jumping at the first offer they receive. For comparison, If you were looking for homes for sale in Connecticut you wouldn’t immediately accept an offer for the first house you see, but would instead look at a few other homes or try to negotiate the price down. Why should picking a venture capitalist be any different? When going through the process of securing an investment, it is important to not become trapped in a deal when there could be a better one out there. Unless the first offer absolutely blows you away, it is important to remain vigilant and search for the best offer. This can include talking to multiple venture capitalists to compare offers, or negotiating with the original venture capitalist to try and get a better deal. If you remain patient and play your cards right, then you are likely to secure that better deal that you were looking for.
One of the biggest things about accepting a venture capital investment is ensuring that you and your investor have the same vision for the company. This is especially important since you will be giving a portion of the company’s ownership over to the investor in the form of equity. The more equity you give to the investor in the deal, then the more input the investor has over the company’s decisions. If you give over 50% of the company’s equity away in the deal, then your investor has the final say in all company decisions and not you. That is why it is extremely important to find an investor that shares your vision for the future of your business. You want an investor that is on board with your future plans and goals. By doing this, you can prevent a lot of fights and bickering over the company’s future decisions. When all parties have a shared vision, the business can make fluid decisions with little delay, which will greatly help the growth of the company.