For new entrepreneurs it can be hard to distinguish the difference between the various types of funding that they can receive for their business so in this article we will be focusing on what venture capital is and what it can do for your business.
So, what exactly is venture capital? Venture capital is a form of funding that investors will provide to businesses and start-ups, most of the time in exchange for equity in the business. These investments often happen in the initial stages of the business when it starts showing potential.
Venture capitalists do not just throw money at potential investments, they normally conduct thorough research before investing in a business. This includes assessing the team, market potential, competition, business model, and technology, among other factors.
Venture capital contains a wide variety of benefits for entrepreneurs, including but not limited to:
Financial freedom – Venture capital is a great boost for a business in its initial stages by giving them financial freedom whereas a typical business in its early stages will have to be more cautious about how them spend their capital.
Risk Sharing – Venture capital investors are usually willing to take on higher levels of risk than traditional investors. This can be especially beneficial for start-ups that are high risk, high reward.
Expertise – Venture capitalists are often experienced, bring valuable industry knowledge, and networks to the team. These will significantly help your business’ chance of succeeding in the long run.
Downsides of venture capital
Having a venture capitalist invest in your business can be incredibly helpful for your business, although it can contain some downsides that are hard to ignore, for example:
Lack of control – As payment for capital, the investors will often take equity and by doing so they will have more of an input on decisions and matters in the business, leaving the founder with less control.
Increased expectations – Venture capitalists want to see quick growth after investing in your business and will expect great things, this will lead to burnout and stress from trying to appease the investors’ expectations.
Time-Consuming Fundraising – obtaining venture capital can be a time-consuming process, diverting valuable time and resources away from the core business operations with no guarantee of obtaining any investors.
To conclude, venture capital is an incredible help for entrepreneurs with the ability to help grow their business to heights they were not able to achieve by themselves. It is not without its downsides, but it is ultimately up to the entrepreneur to decide whether they think venture capital is right for them.