Raising Venture Capital ? The Pros And Cons | Obvious Articles

The major decision to make when raising capital for your business is whether to use debt or equity financing. Venture capital falls under the category of equity financing, which is very different from debt capital, which is commonly seen in the form of a loan from lending institutions like banks.

A major drawback to raising equity capital would be the notion that you first must qualify. Venture capitalists do prefer to select companies which are growing fast and present the potential to go public or be purchased within a few years. It is not uncommon that an entrepreneur will need to prove a business exists in an industry that is growing rapidly and that the entrepreneur has the skills to keep the business competitive.

Raising venture capital also requires a lot of work on your part. As the entrepreneur, you?ll have to prepare thorough business plans with financial projections, power point presentations and even seek third party counsel to make your proposal more compelling. Once you?ve created these deliverables, you?ll have to network and contact the right venture capitalist that invests in your sector.

On top of this, raising equity capital means you will be selling a portion of your business. Because of this, you would be giving away ownership in return for procuring funding. That means if your company is eventually acquired, you will need to share the profits with the venture capital firm.

Such might sound a little overwhelming at first but don?t be too worried. Minority interest in a large company is a lot better than a majority interest in a small company. Case in point, a 10% cut of a $10 million business is a lot more than 100% ownership in a $400,000 business.

Keep in mind the fact that venture capital firms will try to focus on a particular industry. With their ownership in your company, you will gain access to the totality of the venture capital firm?s information and guidance. In actuality, most venture capitalists will require that they hold a seat on your Board of Directors. Such investors have identical goals as you do and that means to grow the business into a success prior to the exit strategy. Thus, their partial ownership in your business is not a negative.

Additionally, venture capitalists require a decent amount of capital they are able to invest. When a firm presents the notion it can grow, it can offer further dollars to help expand a business even further. In addition, capitalists have the network and tools in place to aid in sparking growth in the first place.

Last, raising venture capital will allow you to focus on growing a business without the need to worry about the short term payables. With venture capital, you will not have to worry about any principle or interest payments which debt capital would require. For those companies that are in pre-revenue stages and are currently growth focused, all of this may make a difference.

If you?re looking for business plan help, then consider using a simple business plan template, so you finish your plan in hours, not days, weeks or months.

Source: http://obviousarticles.com/business/raising-venture-capital-the-pros-and-cons

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