September 28, 2017
Your startup that was seeded with your own money is really starting to take off. With good business instincts and sound financial management, you’ve bootstrapped your business into a success. Your big idea has transformed into a thriving, rapid-growth company that’s turning a sustainable profit—the sweet spot for all entrepreneurs.
But, there’s a slight conundrum. Your small-but-mighty team is already firing on all cylinders, yet the demand doesn’t show signs of slowing. You’re already wearing too many hats and feel like you need another head to bear some of that load. On top of it all, the space you’re renting is starting to bust at the seams. You’re feeling the pinch of growth, and at some point, you’re going to have a decision to make: To get to the next level of growth, do we raise capital or continue relying on our profits alone? Well, each option comes with its own set of rewards and risks.
The Pros of Funding
Good investors provide more than just capital, they also bring the knowledge, network and guidance to propel your organization toward the next echelon of growth. When they take the time to understand your vision, goals and culture, they can help align you with the right executive team as well as serve as a key advisor for your business.
Naturally, we can’t ignore the benefits of new capital flowing into your budding business. VC funding provides a lifeline as you grow. It gives you the ability to secure resources—equipment, top-tier talent, more talent, a bigger marketing budget or even expand your growth strategy to include acquisitions—that may have taken you a few more years to conquer on your own. In a nutshell, the injection of investor money often helps you expand your business’ vision, achieve your “big hairy audacious goal,” or reach your desired outcome more quickly than you could have as a bootstrapped operation.
The Cons of Funding
There’s a counter to every argument, and when it comes to accepting investment, the primary one is that it will dilute the ownership and, consequently, the founder’s decision-making ability. When you take on funding, you are inviting a third party into your organization. You may still maintain control of the company, but you’ll also have somebody else—or a whole team of somebody elses—whose opinions must be taken into consideration. And they may not always agree with your perspective.
That said, even though you are inevitably agreeing to give up a percentage of your company when you accept funding, there are numerous ways to structure the terms of the deal.
Do your research to see what options are available. And if the thought of bestowing any decision-making power on someone else is just not something you’re willing to do, then investment may not be the best path for you. But consider the question: what is more appealing, a bigger piece of a smaller pie or a smaller piece of a bigger pie?
If you do choose to continue down the investment path, know that it takes a lot of time away from your business. You have to be in a place where you can afford to put that time into researching investment firms, creating presentations, crafting and refining your pitch, and presenting to potential investors. If things do progress to the next level, you’ll spend even more time preparing everything the investors need to do their due diligence.
It’s important to realize that the process of securing funding can be a big distraction, and that you must keep one eye on the business to avoid having a negative impact on your company’s bottom line.
With funding comes the responsibility of being a good steward of someone else’s money. You have to protect that money, as well as your own. Furthermore, there’s the possibility of having to pay the money back should you lose it. That can put a lot of added stress and pressure on a founder’s shoulders.
As you traverse the decision to seek capital or keep forging ahead on your own, it’s always a good idea to seek advice from business mentors you respect, and who have your best interests in mind. Smart, honest input will help you make the best decision for you and your company.
And don’t forget to ask yourself the tough questions: Are you really prepared to give up control? Do you have the time to undertake such an intense endeavor? Will the added pressure divert your focus away from your vision?
Bottom line: Rely on your instincts. After all, they got you this far.
Read more funding tips at TechCo
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