Venture Capital Funding is the most crucial method to scale a startup and small businesses. The startup company that has high growth potential will get funds from different types of Venture Capital Funds available, respective to the development stages.
Before approaching the right VC to raise money, it is important for the founder to know some of the advantages and disadvantages of venture capital funding.
Let’s check out…
Advantages Of Venture Capital Funding
Knowledge Expertise
The prime most advantage of venture capital is guiding the startup founders and team members. Besides funding, the VCs will take part in the managerial operations of the business firm and play a major role in the decision-making process.
Since the team would not have much experience in the field, VC firms assist them with a group of advisors in several aspects. With much knowledge and industry expertise, it will help the entrepreneurs to devise the perfect business strategies.
Scaling Up
The major advantage of Venture Capital Financing is to scale a startup company. A large amount of money can be raised at different stages of funding, while the range will be from $1million to $10 billion…!
It gives an opportunity to expand the company by raising additional series of funds from the VCs. Thus it boosts the growth of the firm rapidly.
Networking
Venture Capital firms might have helped many startups to grow in the past. They are well known by everyone in the startup ecosystem.
Their network of startups, investors, and marketers will help in collaborating or partnering with many established companies in the industry. Thus, it will gain accessibility to the market and expands your brand.
Hiring And Team Building Process
When VCs come into the picture, it reduces the efforts of the founders that make the Hiring and team-building process simple. The founder needs to build a strong team that gives pillar support to the startup company.
Some might find it hard to hire a CTO, COO, and CMO, etc. Through their networks and contacts, VC will help in hiring the right people with appropriate skills and knowledge.
Manages Failure
Although the risk is high, VCs show interest in investing huge money to support the startup companies for a good return, if the idea would be a feasible one. But, somehow few startup companies may prone to fail (not all) for some reasons.
Unlike other funding methods, in case of any failure, you are not liable to repay the money. This will reduce the burden of repayment. Also, you need not submit any collateral documents to VC that avoids fear and you will not be stuck anywhere.
Reach And Exposure
With the lack of exposure, at the early stages of Startup Company, many founders would struggle to reach the brand to the people. As mentioned earlier, when a startup enters the ecosystem via Venture Capitalists, it gets people’s attention and the reach would be higher without any hassle.
Resource Management
Venture Capitalists will take care of managing the resources by following regulations, Legal compliances, Company Registration, and Intellectual Property rights.
Some Venture Capitalists may tie-up with the Startup Incubators. When you approach VCs through an incubation program you can get some additional resources like Co-working space and equipment etc… to run a company at the early stage.
Easy To Find
Nowadays, it is not hard to find investors for startup funding. Thousands of investors are there readily available to invest in any profitable business model. That too, finding a Venture Capitalists is easy when compared to Angel Investors. They are almost found in all business locality in a country or you can find them online, thereby you can submit an application via their website if needed.
Disadvantages Of Venture Capital Funding
Loss Of Control On Ownership
Investing a high value of money makes VCs to show diligence in handling money and resources to get the best out of it. This makes them take authority in dealing and decision-making. From the founder’s side, it seems to be a big disadvantage as they lose whole control to VCs.
Sharing Huge Sum On Return
Venture Capitalists expect a big share from return on investment as they invest huge amounts of money. Another big reason for expecting such a share is the risk associated with the company.
Long Time To Get Approval
It would be easy to get funds from VC when compared to various funding methods. Yet, it will take a long time to get approval from them. Due to high-risk factors and idea validation, it will take a long time to get processed. It will be a serious disadvantage for the founder that makes them hopeless and discouraged to move further.
Reader’s Insight
Let us know if we missed out on anything in this article advantages and disadvantages of venture capital funding and share your thoughts in the comment section.
