How to approach venture capital investment

Do you even need venture capital financing?

In our venture capital blog series we aim to give you the lowdown on the different types of venture capital firms, whether venture capital investment is right for your company and if so, when is best to start pitching. So far we have provided you with an overview of what you need to know about VCs and early investing venture capital, while this week we help you review whether your company really needs venture capital financing. 

As a founder, you will work solidly to set it up, build a great team and ready yourself for launch. Then slave tirelessly to grow the business and possibly even start making a bit of money! You’ve shed blood, sweat and tears to get it where it is with limited external funding and may feel like now is the time to seek external input, beyond what friends, family or angel investors can provide and feel like venture capital financing is the only way to go to get your business where you want it to go.

Startup circles often ring with the news of yet another huge VC investment and the allure of big bucks fast can be attractive. It can feel like a sensible next step to pursue Venture Capital funding sources, but is it actually necessary to go down that route? There are a few points to consider as to whether you need VC financing.

Do you really need to grow quickly?

There is no getting around it, VC firms want to get a return on their investment as quickly as possible. Which means implementing a strategy to ensure growth is fast. If this doesn’t fit with where you saw your company going, then why are you pursuing this avenue? If the funding is the last chance saloon to prop up your business, you probably don’t need VC investment, it’s likely you need to relook at the structure of your business and alter your strategy to avoid closure rather than seeking external investment. A big injection of cash could just mean you have more to burn through (think HonestBee) and don’t deal with the issues that will still be there post-investment. It may be a better move to plan for slow and steady growth where you keep decision-making to better manage development.

Does your business model align with the goals of a VC investor

Following on from the point above, it’s important your goals align, or can be amended to align easily in a way that suits both your company and the venture capital investor, and you both plan effectively for sustainable growth. And you have refined your business model to ensure it’s right for the quick growth you have just sought investment for. If these things are not in place before gaining investment, focus can be displaced by responding to requests from investors, and spending money on an unsustainable growth plan, meaning 6 months down the line you’re no better developed and unattractive for further investment.

Is your company working to the best it can be?

If growth starts to plateau or you feel things start to stagnate, it’s easy to look for further investment to help you add more to your offer or develop elements of your business. But this should be done after you’ve ensured everything that is already in place is working how you want it to. Like AirBnB hiring a professional photographer for their host adverts and immediately boosting sales. As above, if your delivery isn’t polished, you may be looking outside for funding when you really need to ensure everything is up to scratch internally.

What about other funding avenues?

As discussed, VC investment could be perfect for your business if you’re prepared for speedy growth but if you’re looking for Venture Capital investment for an injection of cash, not only are you giving away a chunk of your business and losing autonomy but if your foundations aren’t right, it could tip you quicker toward challenges. There are other ways to invest in, and develop, your company without going down this avenue such as Angel Investors and bootstrapping. We will look at alternative funding avenues in the next blog series.

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