To VC or Not to VC?

If there’s one thing growing businesses need — maybe even more than, ehem, marketing — it’s capital. That capital can come from a variety of sources. Ideally it’s  generated by profits. But then of course some moves require a bigger chunk of change than even out-of-the-ordinary profits can deliver. At those times, where do you turn? To friends? To banks? To venture capital?

These days, since many banks are still pretty skittish about lending, we’re seeing more and more startups go the VC route. It can be a great thing, provided everyone clearly understands the stakes and expectations going in. For indeed there are plenty of VC horror stories out there about entrepreneurs who “didn’t know what they were getting into.”

This post isn’t about the perils of fine print. Rather it’s about choosing wisely when it comes to money partners. If one cash source is willing to take a chance on you, odds are there are plenty of others who will know a good thing when they see it.  So the first order of business is to tamp down your excitement and be clear-eyed about a step as big as accepting someone else’s money.

Next, when you meet, don’t consider it a one-way interview. Your investors are about to become your business partners — so interview them back! Are they bringing anything more to the table than just the cash? The best investors not only have a large bankroll, they have experience in your industry and access to the resources (personal or otherwise) that you need to succeed.

Lastly, consider how you want your business venture to play out. Remember that big money probably means your investors want to make you a big deal quickly, sell you and take their profit. This may be exactly in line with your goals. If so, great! Make a million…or ten! On the other hand if your dream is to live in your business — build it steadily and savor the challenges that come along with running it — then you might want to be more judicious about how much money you accept.

A lot of VC firms don’t like to lend less that $5 million to a new enterprise. But before you go thinking “cha-CHING! New boat!” think about what sort of return your investors are going to expect for an infusion of that size (and how fast they’ll expect it before they start getting impatient). If your startup is a lifestyle decision more than it is about a quick cash-in, you may want to consider banks or smaller-scale angel investors instead.

Remember, it’s your business. The money is just the fuel to make it go. You can judiciously apply the gas or push the pedal to the floor. The wisest entrepreneurs consider the risks and rewards of both of those options before someone else comes in with a big money stake.

 

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