Venture Capital (VC) funding is often highly coveted by entrepreneurs and start up companies. Gaining VC funding can add credibility to your business and raise its profile. There is a sense that venture capital funded companies may be less likely to fail, or that venture capitalists fund most start up organisations, but as highlighted by the Harvard Business Review, both of these ideas are myths, rather than reality. In fact, firms funded by venture capitalists also fail, and capital to start up and run organisations in the early phases can come from many places other than from VC funding. There is also a long list of reasons why VC funding might not be the best approach for your business. Below are some of the most compelling.

 

One of the key reasons to avoid VC funding is that businesses often end up losing a fair amount of control over their companies to venture capitalists. This is not altogether surprising. After all, if venture capitalists have invested a lot of money in an idea, they also want to make sure it stays on track. This type of control can quickly turn unpleasant for small, entrepreneurial start up firms. Investors can replace key people within organisations if they have too much control and if they feel they are not seeing the success they want. For those that started a company to work for themselves, taking on board VC funding will often mean anything but that.

 

Another reason for not taking on VC funding, which stems from the problem of a lack of control, is that the customer focus you once had may be lost after VC funding. Sometimes once SMEs and startups have VC funding in place, the focus can tend to shift towards pleasing the venture capitalists that invested the money, rather than pleasing and delighting your customers. For entrepreneurs that saw a need in the market and wanted to satisfy the needs of their community first and foremost, this can be a very dissatisfying outcome.

Yet another good reason for not chasing VC capital can be that the fun, dynamic energy of the start up firm can dissipate in some cases when venture capitalists invest in your firm. The business will likely be under much greater scrutiny and there will be more requirement to justify what you are doing to others, rather than just getting on and moving your business forward. In some cases, this can seem overly bureaucratic for entrepreneurs that have been going it alone for quite some time. It may not necessarily be a bad thing for all, but for some, losing that lean, dynamic feeling that start up businesses can have can be disappointing at best, and frustrating and slowing in some cases.

 

Finally, if you take on VC funding, you will usually be selling a share of your business or profits to do so. This means you lose opportunities to reap the gains from your hard work too! There are plenty of other options for gaining access to capital to start or to continue to build your business. Fundsquire can help you to find ways to finance your business that may well be more appropriate to your needs, helping you to maintain control and ownership of your firm, and not steering you off course. Why not contact us to find out how we can help?