Venture capital is a helpful (and sometimes essential) avenue of fundraising for entrepreneurs who are aiming to turn their project from a dream to a reality. But at the same time, VC money can also be the death sentence for the dream that an entrepreneur believe so much in. In this presentation, Mark Juviler takes a look at the downsides of going VC.
Mark Juviler is the Founder and President of Pulse Technologies, a technology consultancy company for high-level database and software design. With Pulse Technologies Mark has worked with a wide variety of companies from hedge funds and banks to NASDAQ.
2. VENTURE CAPITAL IS IN MANY
WAYS A GODSEND.
It allows young companies to
take their ideas from project
to product, dream to reality.
Especially with the growth of
venture capital raising
platforms like AngelList and
accelerators, which make it
even easier for individuals
and companies to find
money-wielding donors.
And lest we forget,
there’s also SharkTank.
3. ALTHOUGH VENTURE CAPITAL CAN BE USEFUL
(AND IN SOME CASES DOWNRIGHT ESSENTIAL)
FOR LIFTING A COMPANY OFF THE GROUND,
YOU WILL GET YOUR FUNDING,
BUT FOR A PRICE.
IN MANY CASES IT CAN ALSO BE TANTAMOUNT
TO SIGNING A FAUSTIAN BLOOD-PACT:
HERE ARE THREE REASONS WHY ANY ENTREPRENEUR
SHOULD THINK TWICE BEFORE TAKING VC MONEY.
4. 1) RAPID GROWTH, RAPID
DEATH ( OR THE CANDLE THAT
BURNS TWICE AS BRIGHTLY. . . )
Congratulations you have
a lot of money! Now you
just have to make sure
that you plan how to use
that money strategically,
otherwise you’ll end up
riding a crazy roller-
coaster to the startup
graveyard.
5. In 2015, Quirky, Secret, and Zirtual
all joined the ranks of the startups
that acquired the money, resulting
in their demise. Be it additional staff
or marketing efforts, once you shift
from a cash-lean model to a cash-
flush model it becomes all too easy
to misuse your extra funds.
Make no mistake: growth is good.
Cash is good. But you need to make
sure you have the necessary
customer adoption and a viable
business strategy if you are going to
avoid having that money lead to
your downfall.
6. 2) HOSTILE TAKEOVER ( OR
YOUR COMPANY IS NO LONGER
YOUR COMPANY)
With every offer you accept, you lose a little bit of your
company. This happens quite literally in that your equity is
diluted more and more, but also in a more overarching systemic
way.
7. Although your goals might be
aligned with your investors at the
onset, they may change your mind
or you may change your mind, and
if you change your mind, then
there’s suddenly another party
that you have to get permission
from.
There’s another voice in the room,
and it’s a voice you have to listen to
because they’ve got something you
want. Be it culture, equity, or even
mission, you no longer have the
autonomy you once had.
8. 3) DEPENDENCE ( OR COULD I
HAVE MORE, SIR? )
Once you start
taking those
battleship-sized
VC investments,
you start to
become
dependent on
receiving them.
9. Small loans, crowdfunding, grants,
and otherwise alternative less
powerful (but also less binding)
forms of building capital look
meagre in comparison to that 1 Mil
that Mr. Wonderful is offering you.
What’s more, even though a VC
might be offering you a big chunk
of cash, they might make you
dance for it.
10. Often VCs require companies to hit certain milestones prior to
hitting more funds. While deadlines can be good (there’s no
better motivation than having a fire lit underneath you), they
can also throw wrenches into your plans.
What happens if you don’t hit that milestone that you’ve been
structuring your fiscal plan around? You’ll need to start
structuring alternate plans not only for the growth of your
company, but also based on whether or not you’ll be getting
your next fix of cash.
11. 3) DEPENDENCE ( OR COULD I
HAVE MORE, SIR? )
Once you start
taking those
battleship-sized
VC investments,
you start to
become
dependent on
receiving them.
12. VC FUNDING CAN BE LUCRATIVE,
BUT IT CAN ALSO BE
TREACHEROUS.
In light of the risk, it’s worth considering what your
company can do without having to sign a blood pact.
Shutterstock, WooThemes, and Basecamp are all
examples of startups that have made it big without VC.
Plus just as it’s become easier to seek out VC funding,
so has it become increasingly easy to find funding
elsewhere.
