You hear it everyday, startups receiving funding from Investor XYZ or Venture Capital Firm ABC. It’s like money is being showered upon new businesses, and builds a great deal of excitement and energy which is what makes Silicon Valley the center of innovation, technology and growth.
While receiving venture funding is great, it’s also painful. For the money you gain, you give away a percentage of your company – whether it is in the form of decision making, the total profit you’re generating, or other means of acquisition of income. In addition, executives find it difficult to respond or answer to board members needs and demands, sometimes the demand are against the vision or goal of the executives or founders, which creates internal conflict and leads to stressful work days as the dream you were hoping to build turned into a task – the task of building someone else’s dream.
The alternative to venture fundings are numerous – including receiving paying customers and gradually expanding. That’s what my last startup did.
The chief executive despised the concept of venture funding, and focused on plans that targeted large businesses as customers and receiving large paychecks. The reasoning is that the large paychecks will pay off the lengthy sales cycle, and can provide sufficient funds to sustain operations in the business. Logically, this is a good idea! As a business, you are not in debt, nor do you have to respond to anyone else. In addition, the chief executive knew that our startup had a great partnership with a large network technology firm, and eventually the startup will be acquired for a great fee.
However, as we were waiting, the burn rate started to increase, and we were nosediving towards red. With the field of social media changing and shifting, product development cycles did not evolve fast enough to meet the demands of the customers. In addition, the competitive field became more intense as few competitors received venture funding, and maximized their focus in capturing markets.
That’s the key to venture funding, capturing the largest possible market and establishing your base.
The goal of venture funding enables businesses to scale much more faster than it were possible through customer funding.
In the future, I hope businesses will consider the value of venture funding, and while it is painful to let go of your dreams, it can provide the leverage to create a more solid foundation, and a better path to growth.