Venture Capital Advantages and Disadvantages

Taking a stroll in your dreamland after a hard day at work seems almost impossible due to the increasing stress, which is because of the inability to maintain a work-life balance. While most people dream of opening their business one day, it is seldom that they actually follow through with their dreams.

Very often, people complain about not being satisfied with their jobs, still, the idea of having their own little business seems too much to handle. One of the main reasons people quote behind not starting their own projects is due to the inability to obtain the appropriate source of funds. Have you heard about venture capital advantages and disadvantages?

No… Well, you are at the right place, and reading this article further may bring you closer to realizing your dreams since you will be able to identify the available and appropriate source of funds.

Let us start with, why do we need capital – Aren’t Ideas Enough?

If you believe that ideas can solely put you on a path to realization and success, you are wrong! Ideas may be the main source of inspiration, but capital is the fuel that will help you initiate things and move forward. There are five types of capital that are needed for starting up a successful business.

They are:

1. Natural Capital

This refers to stock that is used to produce a good or service. Natural capital will include non-renewable and renewable materials, sinks (absorb, neutralize and recycle), and processes.

2. Human Capital

This refers to people, their knowledge, skills, motivation, and health – a recipe for productive work. Human or intellectual capital can be improved through education and training.

3. Social Capital

This refers to institutions that help companies develop human capital and maintain them. Our social capital constitutes our families, businesses, communities, trade unions, voluntary organizations, and schools.

4. Manufactured Capital

These include the material goods as well as the fixed assets that are necessary for production. For example buildings, machines, tools, shares, bonds etc.

    5.Financial Capital

This plays a key role in starting up a business, as well as in obtaining other capital. There are five types of sources for raising finance:

• Venture Capital
• Personal Investment
• Love Money
• Business Incubators
• Bank Loans
• Grants and Subsidies
• Angels

As we are focusing on venture capital advantages and disadvantages in this article, here is why you need venture capital:

Venture Capital

Funding is not for all risk-takers. You should be clear about one thing that venture capitalist is always in search of technology-driven businesses and organizations with a high growth potential. In addition to this criterion, sectors such as biotechnology, communication, and information technology are the preferred area of interests. They take any suitable / ownership position in the company to run the promising, but a highly risky project. This may also involve putting up some equity for grabs. They need a healthy return on their investment; therefore, you should look for venture capitalists that share your ideology, and have the relevant knowledge and experience to truly enjoy venture capital advantages and disadvantages.

Venture Capital Advantages and Disadvantages for Entrepreneurs / Startups

• Advantages
• The primary advantage is that it is a serious source of funds to facilitate rapid business growth. An example can be promoting a novel business idea.
• Since venture capital funds are not a loan, there is no repay schedule and you do not have to pay it back as a cost to the business.
• Venture capitalists often have professionals and consultants that have deep knowledge about the markets, therefore you can avoid many pitfalls that start-ups often run into.
• You being an entrepreneur does not necessarily give you the capability to manage a business or its workforce. As venture capitalists hold a considerable share in your business and are experienced, they can effectively manage your business and help you in it as well.
• Venture capitalists are profit-hungry sharks; therefore, they often come with HR consultancy services to help you hire the best professionals in the industry to take your business forward.
• There are only a few venture capitalists due to strict regulations, and therefore your chances of finding a credible source are increased.
• Venture firms are documented in business directories so they are easy to locate, making your search hassle-free.

• Disadvantages
• They make you trade your ownership in your business for the funds. Therefore, you are not the sole owner anymore.
• Venture capitalists have a strong say in all the important decisions of a company.
• They may also exit the company after being acquired by a larger group or by offering an IPO, and dilute your company owns.
• Venture capital firms often refuse to sign or accept a non-disclosure agreement because of the legal consequences. This can put your business idea at a risk.
• They invest huge funds to satisfy their appetite for profit, but this also means they take extremely high risks.
• If your business plan shows ROI after a five-year period, venture capitalists are not often interested in a five-year payback has become the industry norm for some reason.
• They take too much time in thinking whether to invest in a business or not.

Now, before you decide on using venture capital, advantages and disadvantages should play a key role in your decision making process. The decision process should also involve the consideration for the type of business that you have and the market that is available for you to explore.

Recommendation

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