Venture capital has its appeal. Who can resist funding through a private investor? Still, an ounce of caution goes a long way. Here?s when to say yes and when to say no to venture capital.
By Craig Falck for Africa Report
Yes:
1. They?re good for start-ups: The main purpose of venture capital is to provide finance for businesses that are starting up. Venture capitalists are always looking to invest in companies they think will succeed. If one approaches you, you should be pretty proud that people are taking note of you already.
2. They?re personally invested in your success: Venture capitalists are investors who want the best for your business because that means they will be rewarded for giving you their money. More often than not they will expect a seat on the board of directors, or at least have some say in how your operation works. This isn?t always a bad thing, because they will often bring extra experience and knowledge to the table.
3. Don?t look at venture capital as money only: There?s a host of other benefits such as talent, skills, access to technologies and advancements, not to mention possible access to similar or complimentary companies that the investor may be involved in. You?ll also get more money than you would with a loan. This means that your starting point is far better off than if you had less funding.
No:
1. Payback can be a long-term affair: While a venture capitalist invests in something with a future, the fact remains that they?re in the business of lending money to make money. Yes, you?ll have access to funds a lot more easily than by applying for a loan, but once you?ve paid off a loan, it?s done. With venture capital, you?re always owing someone.
2. Avoid loan sharks: Your investor is going to want to see a return on their investment, which is perfectly acceptable. What isn?t is when their expectations are unreasonably high and put you and your business?s profit at risk. Don?t accept a venture capitalist?s money if they seem more like a loanshark than an investor.
3. Weigh up your options: Don?t accept venture capital just because it?s the first funding offered. You need to do research and consider all your options for financing, including a bank loan, selling shares or taking on silent partners.
Venture capital isn?t for everyone. Sit down and work things out before accepting any money. If the pros outweigh the cons, go for it. But if you?re going to be in a worse-off position for taking on a venture capitalist, just say no.
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