Crowdfund | Is Venture Capital Financing the Right Move for Your Company?
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Is Venture Capital Financing the Right Move for Your Company?

We’ve explored a lot about how venture capital works, and how it can be a vital resource and vehicle in launching a new business. However, the cold, hard truth is that venture capital isn’t for every business. In fact, if you try to acquire venture capital before your business is ready for it, then you may lose all the equity you’ve worked so hard to build up and accrue. If you aren’t careful, venture capital can also ruin your business before you have a chance to get it off the ground…

Read on to learn more about how venture capital can ruin your company, and what steps you need to take to avoid that from happening.

What is the Problem with Venture Capital?

Some entrepreneurs and owners make the mistake of treating venture capital as a means to an end. This means that they treat venture capital as an endless amount of cash flow that will fix all their problems and get their business to where it needs to go.

Wrong.

Venture capital should rather be treated as a reserved resource aiding a company to reach specific milestones, landmarks or goals, and to help the organization grow when needed.

Questions to Ask BEFORE Signing with a Venture Capital Firm

So how can entrepreneurs and owners avoid making a hasty financial mistake? Here are some questions entrepreneurs and owners can ask before signing any agreement with a venture capital firm.

  1. How is the investor aligned with your business? First and foremost, before agreeing to work with any venture capital firm that’s willing to throw money your way, it’s best to carefully consider how – or if – the venture capital firm is aligned with your business. You want to make sure you work with a firm that has experience in your particular industry, and that also backs your business, and in the best way.
  2. What is the History of the Investor or VC Firm? Again, it might tempting to work with any firm that is willing to fund your business, however, your ultimate goal should be to partner with venture capital firms with a strong track record of mentorship and support and a solid history.


Money is great, but if your investors don’t share your company’s long-term goals, then this can lead to a high-pressure and tense situation, which can result in damaging your company’s reputation.

 

  1. Is Your Company Ready to Work with Investors? The third, and perhaps the most important question is whether or not your company is really, REALLY ready to work with outside investors. So how can you tell if your business is ready? If your business has built a product or service that has been successfully launched, or if you have successfully marketed, defined, and appealed to a target market sector or if you can comfortably say that you truly understand your buyer personas, then you are probably ready to work with a venture capital firm.

Unfortunately, too many entrepreneurs make the mistake of treating capital as the key resource to building and growing their businesses. However, the truth is if you don’t have a solid structure in place, then it is likely that you will inadvertently mismanage or misuse funds. This is where alternatives to traditional venture funding come into play.

Ultimately, businesses should use venture capital in order to help further develop what you have already built, which could take several years.

If you are unsure of where your company stands in terms of defining target market, buyers or if you lack another crucial characteristic, then it is probably best to take a step back and really consider your investment options. After all, you don’t want to ruin your business or watch it fail before you have the chance to really build it up. You may also discover that there are other investment options are available, and that one of those options might be a better fit for your business.