Venture Capital for Small Business | Venture Funding, a Friend of Foe?
Venture Capital companies for small business may offer great money to start for funding of your new project but what they want in return?
Venture Capital & Venture Capital Funding
Ok, so you just purchased your complete turnkey Brand Package from Brandings, now you’re looking to secure funding for your start-up. One option is funding from venture capital firms “can you do it” should you do it?
The Brandings Team has put together an article explaining the benefits and pitfalls of taking money from a venture capital firms. You always think getting this “free money” from these companies is a good thing but, as they say, “there’s nothing free in life.” The reality is that you may well lose control of your business and control of determining the vision and strategic direction of your company.
Well enjoy the article and don’t hesitate to e-mail us with questions or comments. I would be more then happy to respond. If you have any questions about Brandings or the services we offer please feel free to contact a Brandings Client Service Team representative today at 1-800-852-8900 (international callers 1-310-246-5100) or simply click here to contact our amazing Brandings staff.
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What Should You Know About Venture Capital?
Venture capital, a type of equity funding, is essentially an investment that combines a life insurance policy and mutual fund shares. With this option, the investor is shielded by the protection of the insurance policy (collateral), and also has the added bonus of growth potential of the mutual fund. The term equity funding is the exchange of money for a share of business. This allows business owners to obtain funding without incurring any debt, but there are potential downsides of venture capital all entrepreneurs should be aware of.
Venture Capital Myths Dispelled
Many startup companies in search of funding often consider venture capital as a feasible solution-but this is often not the best choice. While venture capital may be viable for some businesses, there are many factors to take into consideration prior to deciding to use this type of funding.
When in search of business funding, the end goal of obtaining funding is often the only factor given consideration. More importantly, business owners must realize that the method in which funding is obtained will have both positive and negative short-term and long-term consequences, depending on the ultimate end goals. As previously stated, venture capital is typically invested in a company in exchange for shares in said company. Depending on the amount of capital received, that could mean the business owner loses ultimate control over the business. When the investor and business owner have misaligned goals, this could translate into huge problems. Venture capitalists invest in companies with the most potential to realize extreme growth in hopes of an eventual sale of the company. If your end goal does not include the eventual sale of your company, or there is a chance that you will receive a nominal return on investment for the sale of the remaining shares of your company, an alternative funding option should be considered.
Another misconception is that venture capital is somewhat easy to receive. It takes time to contrive an effective funding proposal and to find investors who are actually willing to read and consider your proposal. Despite the substantial amount of time spent on the funding proposal process, the majority of businesses never actually receive venture capital, because in spite of how innovative your business is, venture capitalists have very high expectations and aim to ensure high yields on their investments-sometimes 30 percent or higher.
This brings us to the high cost of venture capital. Unlike debt funding, there is no amount that must be repaid, but with a 30 percent return on investment, along with salaries and bonuses, venture capital becomes very expensive. While this money may not necessarily be coming from your wallet, it is coming from somewhere-your business.
Before deciding if venture capital is right for your business, consider the following advantages and disadvantages:
The advantages of equity funding are as follows:
– You do not have to pay back your investors even if your company goes bankrupt
– Business assets do not have to be pledged as collateral to obtain equity
– Businesses with sufficient equity will look better to lenders, investors, etc.
– Your business will have more cash available because it will not have to make debt payments
The disadvantages of equity funding are as follows:
– You will have to relinquish ownership and a share of your businesses profit to other investors
– Other owners may have different ideas than yours on how businesses should be run
– Payments to investors in C-corporations are not tax deductible
- J. Mariah Brown is the owner and editor-in-chief of Writings by Design, LLC. To learn more about how Writings by Design can help your business formulate a fool-proof funding request, please visit us at writingsbydesign, or email your question to [email protected]. Article Source: EzineArticles Expert Mariah Brown
Update – By now many people have seen the show in the US or England, “Shark Tank” where people with great ideas and some not so great ideas, come and meet in wealthy investors or singular venture capital investors. The venture capital group or person decides how much they would invest and how much or what percentage of the company would be signed over to them in return.
This is pretty much the way it happens. What you have to be very careful about, as the article says is that in the process of getting the money you are giving away control to the venture capital group. You have to know where to draw the line and that is the great pitfall of taking the money.
Taking money from the venture capital group can open a lot of doors for you as well. The group may have other small start-up businesses like yourself that you can connect with or you might even get a look at the groups Rolodex which can open a world of opportunities.