Startup companies have a variety of ways to fund their growth, including equity financing, bank loans, and crowdfunding. One of the best options for startup companies with significant potential for growth is venture capital (also called VC). Let’s explore some of the most significant advantages and disadvantages of venture capital, as well as alternative ways to raise capital for your startup
What is Venture Capital?
Venture capital is a common way for promising startup companies to gain the finances they need to grow. Venture capital financing involves venture capitalists, who are often part of a venture capital firm, investing in a startup company.
When venture capitalists invest in a start-up company, they are making a risky investment. They expect the business to demonstrate substantial growth and become profitable quickly. Potential growth is the most important trait a VC firm looks for. Toptal shared some insights on the state and the trends of venture capital industry in 2019, which seems very interesting, especially for startup investment.
Advantages of Venture Capital
Here are some of the main advantages of venture capital.
Based on Potential
While banks and other lenders require demonstrated profitability before they invest, VC investors provide capital based on potential. While many startup companies have great potential, they usually have not achieved profitability.
Thus, a great business plan is what makes a company a good candidate for a venture capital investment. If you are a small business owner with a brilliant business plan in the early stages of execution, venture capital funds are one of your best options to get the funding you need.
In comparison to other ways of raising capital, venture capital gives startup companies significantly more resources. Whether it be through a bank loan, crowdfunding, an angel investor, or equity financing, venture capital usually gives you the most funding.
Disadvantages of Venture Capital
While venture capital does provide significant benefits to startup companies with potential, there are also some major disadvantages.
When a VC firm invests in your company, they aren’t giving you money for free. Usually, a stipulation is that they will take a seat on your company’s board of directors or on the management team. Venture capitalists need some assurance since they are making such a risky investment in your company.
While this stipulation does make logical sense, it can also lead to dissatisfaction and conflict. As a result of your loss of control, you may have to adjust your business operations or change crucial parts of your company to keep your investors satisfied.
When investors provide your company with a VC fund, they expect quick, positive results. This can lead to significant pressure on the business owner, especially when the results aren’t positive or move slower than the investor expects.
Of course, venture capital is not the only way to fund your startup. Here are a few alternative ways startups can raise capital.
Equity financing: Equity financing involves selling shares of equity in your company. While you may receive the additional funding you need, likely, you will no longer possess the majority of the equity in your company, which can result in a loss of control.
Business Loans: Generally, banks are not a great option for startup companies. While the interest rates are low, the cons outweigh the benefits. Bank loans do not provide significant amounts of capital. More importantly, however, banks require that the company has already proved their profitability—which is rarely true of startups.
Angel Investors: An angel investor is an individual or small group of individuals who
Crowdfunding: Crowdfunding allows you to promote your business plan through different media and ask regular people to invest. While there is no debt involved, it is risky because you have no assurance you will receive the capital you need. There is also tough competition from similar businesses.
What Does RevTek Capital Provide?
At RevTek capital, we provide startups the capital they need without taking over. We have no desire to become owners of your company or become involved in your business management. We simply want to give you the capital you need to execute your business plan and expand your company.
RevTek helps small businesses in the tech field gain the capital that they need to expand and surpass their current levels of success. We provide the combination of capital and freedom that can allow you to successfully grow your business.
Our model is quite simple: we provide the capital, and you pay it back in manageable monthly payments based on your monthly, recurring revenue. To be eligible, you do not need to be profitable, but you should have a predictable recurring revenue of at least $50,000 a month.
While venture capital investments can get you the funds you need, it will also strip you of control, and may even result in you losing equity. You will not find any other funding options that provides you the combination of capital and freedom that RevTek does.