The folks at FindTheBest.com wrote us the following guest post in response to Aziz’s latest post on venture capital. FindTheBest is unbiased, data-driven search engine that helps people make quick and informed decisions. Below, they offer their take on the venture capital decision, and show us a tool they’ve built to help entrepreneurs answer that question:
Every budding start-up comes across the same big question as its revenue starts to grow, “Is it time to seek funding from a Venture Capital Firm?” The answer may vary depending on the type of company and the economic conditions surrounding the forecasted growth of the startup. One aspect that every entrepreneur must do is evaluate whether they actually need VC funding or if they should go after the likes of an angel investor, private equity investor and maybe even a business incubator. Venture Capital funding has its positives and negatives and they must be assessed before considering accepting an offer.
We will first look at the positives:
1. Money, Experience, and Mentoring
The biggest takeaway from working with a venture capitalist is the lifetimes worth of experience they bring to the table. It is more than likely that your investors have worked with companies similar to your startup or have ran their own company. Their experiences as successful entrepreneurs becomes an asset to your company as they can provide you with direction, advice, and money that has a continuous flow. If you are interested in scaling your startup, VC funding should be an objective on your company’s roadmap.
2. Networking and Recruiting
This is most likely not your investors first time working with a company. They have worked with several successful startups and manage to maintain an extensive list of contacts with top executives and other venture firms they have worked with. They can help you seek funding from other firms and hire skilled executives to help manage your company. If the money and experience was not enough of a reason to work with a VC, the size of their rolodexes should do the trick.
3. Shared risk, Big picture, Exit strategy
Risk arises in any business, not just startup companies. The market will not always work in your favor and deals will not always turnout as expected. Investors are there to support you through the rough times that every startup faces, whether through monetary means or reassurance. They are also the masters of focusing on the big picture while making sure to emphasis the present. If a VC has invested in you, it is because they believe in the future growth of your company. Lastly, the exit strategy. Everything must come to an end, and with startups the end may be three or four years down the road. When the day comes, your investors will make sure you are prepared to cash out and start again.
Now we will assess the negatives:
1. Exit Strategy
There are some cases where venture capitalists are investing just for the exit, meaning their only priority is to sell the company or take it public. Several VC firms are looking to multiply their returns, but that is business and does not necessarily hurt your bank account. Personal relationships with your investors can sometimes be overshadowed by shareholder returns.
2. Losing Independence
CEO is just the name you gave yourself when the company started. When signing the dotted line with a venture capitalist, it no longer becomes just your company. VCs will want one or more board seats with the right to veto actions that your company plans to take. Investors may also have the right to fire you or any member of your management team.
Resource for Selecting Venture Capital Firms:
A new resource was recently created by a startup in Santa Barbara called FindTheBest. FindTheBest is an unbiased, data-driven search engine that helps people make quick and informed decisions. They have developed a new tool that helps anyone seeking venture capital funding select the right firm for their startup. This tool allows you to search for and compare firms based on industry focus, fund size, investment stage, etc. It is a highly valuable tool that will help any startup assess the decision to seek VC funding. The resource is interactive and easy to use. Check out to tool here and access the link above:
The negatives of working with venture capital firms should be considered when deciding to seek funding. Is your startup really ready for an exit or a takeover? The positives in most cases lead to big success in the future. The monetary value and experience they bring to a startup help growing companies move in the right direction. Remember, a VC has been there before and they will apply all they know about running a startup to your company. If your goal when deciding to run a startup was to change the world and make money that you never envisioned having, venture capital funding is a step in the right direction.