Why should startups look externally for fundraising?
In a modern global economy, building the company of your dreams usually demands an injection of investment and innovative methods to keep up. Expanding and working across MENA countries has been proven to be advantageous for many startups—as many consider the region to be a hub of innovation. Companies like Souq, Careem, and Uber are just some of the successful businesses to enter the market.
It is possible for startups to survive in the market without external funding. However, not all entrepreneurs are able to fund their startups from personal savings or other existing resources. If you want to scale your business at a fast pace, or intend to acquire equipment and other assets rapidly, venture capital funding is recommended in order to establish your startup in the market. Here’s why:
1. It accelerates growth when demands are high.
This is the first and foremost advantage of venture capital, as it allows you to quickly expand business and gain brand recognition by providing financial backing. Since this funding is a form of equity, it is the investors who shoulder the investment risks. Startups can acquire a large sum of capital not usually possible through conventional methods.
2. It allows you to finance growth projects your business could not fund on its own.
Since the VC funding is not a loan scheme, there is no burden of a repay schedule as a cost of doing business. This in turn frees up important cash flow you can use to service debt and allows you to set aside internal financial resources for other purposes.
3. You benefit from their professional network.
VCs are affiliated with people who are experts in areas extremely valuable to your startup—serving as an important source of guidance as you make high-level decisions on different aspects of your business. Many VCs have consultants on their staff which may help your business avoid pitfalls usually associated with your startup.
4. Venture capitalists take an active role in your company’s performance.
For VCs, the high risk of investing is offset by the potential of high returns. Traditionally, the role of a VC is to provide funding to early-stage high-potential startups. However, there are VCs such as ASA Ventures that employ a more hybrid approach of going beyond the role of a stakeholder by providing guidance as go about your startup.
External financing can be tricky, but one of the most crucial factors in successful funding includes the right opportunities—and as it happens, the most successful venture capitalists that employ hybrid models can provide this by strategic business consulting and smart capital.
The venture capital ecosystem in the UAE has come to the extent where traditional and non-traditional capital converges. In choosing a venture capital firm, it would be wise to select one that goes beyond the traditional role of a VC, one that upholds the necessity to constantly employ innovative methods in coming up with strategic methods designed to achieve success and sustainability sought by all involved parties.