Many startup founders think that raising venture capital (VC) funding is a prerequisite for success. It’s not.
Sure, there are compelling reasons to raise money. The rise of billion-dollar “unicorns” - Bytedance, Stripe, Airbnb, and others - have shown us just how powerful VC infusions can be.
But there are also downsides. VC funding comes loaded with outside expectations, influences, and pressures. If you aren’t ready for the consequences of accepting VC money, you could end up far from your desired destination.
So, here are the pros and cons of raising VC funding so that you have a better idea of what your startup needs. Our hope is that this inspires you to pause and think hard about whether or not the VC route is right for you, despite what the world may be whispering in your ear.
The Upsides of Taking Venture Capital Money
First, the advantages.
One obvious benefit of taking venture capital funding is that you get a major cash injection to accelerate growth. You can use the money to hire new talent, scale products, double down on marketing, whatever you need. VC funding can even help you pay the bills until the revenue engine really gets rolling.
Another advantage of accepting VC money is that you gain access to your investors’ networks. The people who invest in your startup will be motivated to help you succeed, because they have skin in the game. They’ll introduce you to valuable contacts who can help you get your foot in the door with important suppliers, distributors, customer segments, or others.
Furthermore, many VCs are entrepreneurs or former entrepreneurs themselves. They know what it takes to start and build successful businesses. When you partner with VCs, you have their tried-and-true wisdom at your disposal. Also, running a startup can be an isolating experience, so it’s nice to have people on your side who have been in your shoes and want you to succeed.
Successful VC funding rounds also come with exciting press coverage (e.g., TechCrunch features, Forbes articles, speaking opportunities, etc.). As a startup founder, that kind of validation can be intoxicating.
On the other hand...
The Downsides of Taking Venture Capital Money
There are good reasons not to raise VC funding.
As soon as you take outside money, you introduce new voices to the table who often want to tell you how to run your business. While this advice can be helpful, it means you have less control. You are no longer your own boss, which might be why you started a company in the first place!
Keep in mind that investors are also incentivized to push you in the direction that they believe leads to the biggest possible returns. These “pushes” may or may not take you where you want to go. Outside investors can also be flat out wrong about what makes sense for your business.
Bringing new investors into the mix also dilutes company ownership. After raising money, you will own a smaller piece of the pie that represents your company’s value. The hope, of course, is that the pie grows so large that everyone ends up with much more than they can eat.
On a related note, VCs can dictate when you eat. You may want to continue expanding into new markets and service areas right when your investors are ready to cash out. This kind of tension is not healthy for young companies.
Finally, VC funding can put tremendous weight and strain on your business. Those who aren’t prepared can buckle under the pressure that comes with trying to reach that $100M or $1B valuation that may not be feasible for your business model. And to be clear, it’s okay if your startup is not meant to play in the sky-high valuation universe. That doesn’t mean your work is not important or meaningful.
The Decision is Yours
Choosing whether or not to pursue VC funding is a big decision, and there is no one-size-fits-all answer. We’ve seen startups thrive with and without VC money. At the end of the day, you know what your business needs to be successful.
Our team at Funded.club understands the excitement and challenges that come with running a fast-growing business in the modern age. That’s why we offer coaching packages in addition to our fixed-fee recruiting services. We can help you clarify your goals, articulate your vision, and determine whether or not raising money from venture capitalists is right for you.
Schedule a free 30-min call with Ray Gibson or one of our other executive leaders today to get started.
Ray Gibson is founder and CEO of Funded.club. He brings 20 years of experience in recruiting across Europe, North America and Asia and 5 years running his own startups.