Venture Capital funding has slowly increased in popularity over the past decade. With an increasing number of startups, there has been a similar increase in VC funding. In 2017, UAE startups attracted $400 million of VC funding, the highest within the GCC region. Therefore, it is no surprise that promising startups would look at venture capital in order to secure funds.
However, does receiving VC funding means success for all startups?
Advantages of Receiving VC Funding
Venture capital firms find profit only if your business succeeds. Thus, if you are triumphant they win big, and their entire investment goes to vain if you lose. To put it short, the business owner doesn’t owe the venture investment money, unlike a bank loan.
The right venture capital would help you with unique expertise as well as management skills. Since the VC has invested in your business, they will want you to have the best available management and business assistance. Certain venture capital firms such as ASA Ventures act as operational partners, providing monetary capital as well as professional expertise in the form of customer management, research and market intelligence, and strategic direction, in order to establish and develop startups into successful ventures.
Other than capital, startups also require resources to compete in the market. Venture capitalists are often well equipped with resources which could be employed by the startups to scale up to the point of standing out amongst the other competitors.
Disadvantages Of Receiving VC Funding
Venture capitalists don’t always stand in support of your business’s aims and priorities. Their priorities scale up to what they think is best for your business. Thus, there are chances that your business might not be ready to grow as quickly as to how your VC would want it to.
Therefore, if you really think that you have a superior business model in hand, then approaching a VC might prove to be losing a huge part of your future profits.
Though invisible, VC funding comes with strings attached. Based on the amount of equity granted to the VC, the investors will own a larger part of controlling the company’s decision-making ability.
Additionally, when the manager is too busy with the outside investors, it may lead to the disruption of the company’s daily operations.
These explanations narrow down to a single point – startups must cautiously proceed with venture capital funding. Obviously, there is no right or wrong way to find funding for your business. The one thing that every company could do is to weigh the positives and negatives of every situation carefully. Funding from any source, be it a VC or an angel investor, does not guarantee success; they are just the means to facilitate growth.