The speaker discusses the pros of venture capital, such as rapid growth, market dominance, and financial stability, allowing startups to avoid month-to-month struggles and accelerate their progress with a significant runway.
What this video covers
In terms of the pros, the most important one, obviously, is going to be that you are going to be able to go much faster. Rather than bootstrapping and then risking it and maybe you’re going to make it or maybe not, with venture capital, you and just get that money, give yourself 18 to 24 months of runway.
The next pro is being able to buy up the market. For example, if you’re operating a platform or a marketplace where you have the supply and the demand, you’re able to go out and spend a lot in marketing; you’re able to get mindshare and market share from the other competitors that perhaps don’t have as much fuel in order to do advertising and get the word out there.
The next is that you don’t have to die before you make it. This is one of the critical pieces to understand when we’re talking about the pros of getting venture capital money. Rather than just going like month-to-month, paycheck-to-paycheck, or whatever you want to call it. When you have venture capital, you can go super-fast.
The next advantage here is that you are going to be able to attract and potentially retain great talent. When you’re able to get venture capital money from talking to your firms, essentially, you’re sending a signal to the market that you’re in a position of strength, that things are working out, and that’s why sophisticated investors are backing your business.
The next is that you’re going to be able to have great, great networks. When you’re raising money from venture capitals, and perhaps, you’re sending them the pitch deck, you’re getting them aligned, and by the way, you have a great pitch deck template below, which I recommend that you download.
Then, of course, to subsequent rounds of financing where they can introduce you to other investors, and then to potential acquirers that they know, that they can just lift up the phone, tell them how exciting your business is, and then you get enough on the table to acquire your business.
Now, in terms of the disadvantages or the cons when it comes to raising money. The first one is, obviously, distraction.
The next con or disadvantage is that you are committing to an exit. The minute that you’re taking venture capital money in, you’re making them a promise that eventually, you’re going to give them returns, whether it’s in the form of an acquisition, doing an IPO, or whatever that is, you’re essentially telling them that you’re going to go really fast and you’re going to go very fast, and then one day you’re going to give them returns on the investment that they’re giving you.
The next disadvantage at the end of the day is losing control. So rather than having 100% of your business, now you’re going to be giving away equity, you’re going to be giving away seats on your board, so they’re going to be making votes, and they’re going to have a say on the execution and on the strategy of your business. The problem with that is that the more that you raise, the less control that you have, the less equity that you hold, and they can eventually kick you out of the business if you’re not performing well.
The next disadvantage is attracting the wrong people. Let’s face it; there’s the good, the bad, and the ugly. It’s not about the firm that you’re working with; it’s about the partner that you’re working with. At the end of the day, if you’re attracting the wrong candidate to sit on your board or perhaps to make an investment in your business, not only can they get you out of that company, they can also destroy financial rounds. They can also destroy potential acquisitions.
The next disadvantage or the next con is that you are going to have a smaller piece of the pie. When you’re taking money in, you are telling that investor that rather than maybe being at a $50 million valuation, in which they’re making the investment today, you’re promising them that potentially you’re going to get to a $500 million acquisition. So, you are increasing your chances of risk; you’re making it much riskier for you.
