Venture capital financing can be an extremely important asset to startups that do not have access to other types of traditional business financing, such as bank loans or the public markets. There can be many benefits to venture capital financing for entrepreneurs, including the following:
- Venture capital involves equity capital, so it does not leave a startup with substantial debt from the start;
- Venture capitalists often take greater risks on young and unestablished companies because they see the potential for extensive growth and, therefore, higher returns;
- A venture capital firm can assist in raising money for your startup so that you can spend more time on development and operations – not simply fundraising;
- Venture capitalists play an active role in the startup, including the structure, marketing, and governance of the new business.
Because venture capitalists are often highly experienced in the business, their participation can help provide expert advice and timely opinions for a new entrepreneur. Venture capitalists often serve as members of the board of directors of an invested startup, as they will want an active say in how the business develops and grows so they can manage and monitor their investment.
Securing venture capital financing is not always as easy as an entrepreneur may imagine. While it may be one of the most well-known types of financing, venture capital firms recognize that not all startups are successful ventures, so they can be very selective when it comes to making investments. Venture capital firms will carefully perform due diligence on a startup before ever deciding to invest, so everything should be in order before seeking this type of financing.
While venture capital financing has many benefits, there are many potential drawbacks as well. For example, venture capitalists typically expect a higher return on the investment than a traditional lender would require. In some instances, venture capital financing is not the right fit for the startup business and an alternate method of seed financing should be explored. Generally, it is best to have the guidance from an experienced Silicon Valley startup attorney who has assisted many startup businesses on selecting an appropriate avenue for financing.
Consult with a Silicon Valley Startup Attorney Today
Securing venture capital financing can be instrumental for a startup business. However, in some cases, venture capital financing will not be the right fit for your startup, or it will not be possible to likely secure. With other popular methods of financing such as angel investors or crowdfunding, you should always carefully consider which type of financing will be right for your startup business before you seek out venture capital financing. The Silicon Valley startup attorneys at Structure Law Group, LLP have helped many new business owners determine the right type of financing for their startup and obtain the funding desired. If you would like to discuss your startup’s needs, please call our office in San Jose for assistance today at 408-441-7500.