The dilemma of deciding whether to accept venture capital funding from an interested VC firm is a good problem to have. The vast majority of startups never reach this stage. But for those businesses that, through a combination of hard work, innovation, and good fortune, have attracted the attention of venture capital firms, the decision to accept their money is still incredibly important and fraught with high risks and high rewards. In this stage of your company’s development, you should consider the following advantages and disadvantages of venture capital investment.
The Advantages of Obtaining Venture Capital Funding
You can keep the money.
Angel and VC investors are taking a chance on your company. If it is a success, they will profit greatly; if it fails, they will take a loss. You are under no obligation to repay VC funds, unlike a bank loan. You won’t have investor debt hanging over your head if you fail.
Venture capital can assist your business in expanding quickly.
Without VC funding, you might have to wait for a reliable flow of income before you hire more employees or buy pricey machinery or technology. If you had extra funds, you could immediately advance your business.
The Disadvantages of Obtaining Venture Capital Funding
Your investors have ownership rights in your business.
Even though you are not required to repay VC funds, there are conditions associated with the funding. In exchange for an equity stake in your business, investors will pay you money. By doing this, you can offer future shareholders shares you currently own. Depending on the number of shares granted, you might be granting investors the authority to control how your company is run.
It’s possible that your business isn’t ready to expand.
You run the risk of spending money on hires and expenses that won’t be beneficial to your business in the long run if you accept outside funding before figuring out how to make it profitable on its own. Startups typically fail as a result of overscaling and underinvesting in resources.
As you can see from the information above, accepting VC funding may be the single best decision you will ever make for the long-term success of your business. However, it may also be the last one you will ever get to make on your company’s behalf.
Alvarez & Diaz-Silveira LLP is a corporate law firm in Miami, focusing on international and domestic M&A, finance, real estate and corporate immigration. If you or your business needs legal advice, contact an M&A Attorney in Miami for help.