Should you seek venture capital (VC) for your business in an effort to take it to the next level? If you’re an entrepreneur with an innovative or disruptive business idea, you’ve likely already pondered that question. The first thing to consider is whether or not you’re willing to give up a stake in your business and have expectations placed upon you by new business partners. That’s a tough pill to swallow for business owners that are used to calling the shots and having complete control.
Truth be told, venture capitalists rarely invest in startup businesses; they’re too risky. Publications like Forbes, Inc and Entrepreneur paint an inaccurate picture of the prevalence of venture capital transactions. In fact, there are only 2,000 – 3,000 venture capital transactions in the United States each year. Instead, venture capitalists often invest in established businesses that have a proven track record of profitability. Venture capital firms want to win big by making money when a business goes public or is acquired by a larger company. A company must grow quickly in order for that to happen and venture capitalists are very impatient when they’re heavily invested in a brand. Most venture capital firms would like for their investments to be acquired or go public within a four to seven-year timeframe. A new idea that doesn’t scale quick enough can also lose out to competitors with similar concepts and business models.
If your business has already reached a level where you’re catching the attention of venture capitalists, then the ball is now in your court. That’s because you’ll have the ability to choose the offer that is right for you and your business. These occasions are rare as well. The average age of a company that actually receives venture capital is four years. The average amount of time it takes for a successful VC transaction to occur is three months and that’s when both parties are mutually interested in each other. The majority of companies that do receive venture capital are based in the healthcare and tech fields. Blockchain and digital currency companies are currently receiving a lot of attention from investors in 2018.
If you do decide to seek venture capital, you’ll want a partner that has a proven track record of success in your brand’s industry. You’ll also want to partner with venture capitalists that were entrepreneurs themselves and understand the waters you’re currently trying to navigate as a business owner. What you don’t want to do is to take out a small business loan to fund your operation. 99% of small businesses bootstrap their operations in the beginning; even billion-dollar enterprises when they were first founded.
The ability to quickly scale a business without spending a lot of money is what makes growth hackers so vital to startups. Growth hackers are technically savvy employees that are often well-versed in digital marketing areas such as search engine optimization (SEO), paid advertising, social media marketing and content marketing. SEO is an effective marketing practice that will bring in free traffic that converts to sales if the right strategy is in place. Growth hackers rarely serve roles as long-term employees; at least in Silicon Valley and New York City. They help get one business off the ground and then move onto the next.
Ultimately, only a business owner will know whether pursuing venture capital is the right action to take. What if more time is spent pursuing funding than actually building the business? What if the venture capitalist with a controlling stake in your company decides you’re no longer the right fit to run the business you founded? Are you ok with regularly reporting key performance indicators (KPI’s) to venture capitalists outside of the company? Will you be able to handle their criticisms when the business underperforms? These are important questions to ask yourself.
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