Why Some Start-ups Avoids Venture Capitalists

Image result for Why some Start-ups Avoids Venture CapitalistsEvery year, millions of new businesses are started in the world. However, only a few businesses successful raise venture capital, according to Harvard Business Review. The following are some reasons why some companies view VC fund as a capital source of last resort.

Control

VCs bring the resources and capital to a start-up. When things get ugly and the business performs poorly, investors can replace the management if they think the change will increase their chances of success. To avoid control in their own businesses, some people avoid VC funds.

Focusing on investor rather than customers

A business that is funded by investors gives investors first priority. Among many terms that are negotiated in a deal, some VC ask for dividends, anti-dilution protection, mandatory redemption, liquidation preferences and other perks.

Dilution

VCs gets their own terms and take a large share of equity position, potentially driving founder of the company below 50% ownership. The bigger VCs are likely to have full control over successive rounds of funding, which will dilute original owners and the founder.

VCs have their advantages and disadvantages. Therefore, it is dangerous to see them only as an aspirational goal.

References

https://www.entrepreneur.com/article/253541

https://www.entrepreneur.com/article/253541

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