Venture capital, as with any type of business funding, has its drawbacks as well as its advantages. The truth is that no type of funding is wholly good or bad for a business; but in certain situations, venture capital could be the best option available to you.
Venture capital is typically used to help to support higher risk companies in the early stages of their development. It is particularly prevalent in the tech and scientific sectors, where business failure rates are high. However, it is also used by businesses that offer a great product or service and have an encouraging early sales record.
So why might a venture capital investment be the right source of finance for you?
1. That all-important sounding board
It can be lonely at the top. When you’re a business owner with a big decision to make, who do you turn to for help? Having an experienced venture capital investor on your side can give you access to the experience and expertise you need. In the early days, this sounding board for critical decisions can greatly increase your chances of success.
2. Opening doors
Venture capital often involves a number of different parties, such as investors, consultants, and the other startups and SMEs the investors have on their books. These are likely to operate in a similar sector, which could give you access to the suppliers and customers you need to make your business a success.
3. You’re dealing with experts
The banks take a one-size fits all approach to their lending strategy. Venture capitalists are experienced when it comes to dealing with businesses of a certain kind. They understand that every business has different requirements and needs a deal that is tailored accordingly to meet these needs.
4. They can see the bigger picture
Venture capitalists are more aware and accepting of the bigger picture. A bank may be reluctant to lend to a company that expects to make a loss in its first two years of operation. Banks are averse to risk, so would prefer to back a company that makes money from the off. Venture capitalists tend to place a stronger emphasis on growth. They understand that it takes investment to grow, and will sacrifice quick returns for long-term growth.
5. You can raise more money
Venture capital gives businesses the opportunity to raise more money than they could through traditional lending streams like a bank loan. They also have the ability to invest in the business more than once. So, if you need a significant amount of capital to kick start your business, or want access to further funding to scale the business up as it starts to grow, venture capital could be the funding option for you.
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