By Brian McKay
Founders of startups dream of making it big. Let’s face it, a business is never started just to languish and eventually fail. One of the easiest paths to immense success can be the infusion that comes with venture capital. Money can provide the needed tools and employees to take the business to the next level, but it can also tie you to bad management or a different vision from what you originally had.
VC just sounds awesome. When the guys with the big money come knocking it means you have a potential hit and the rest of the world will now take notice. Now your startup has a valuation based on what going public would produce for you. The best talents want to work for you and get in on the action. On paper, you are probably wealthy after accepting the VC.
Sure, you can now develop and get to market faster. There are funds to hire as needed, to buy the expensive equipment and start a proper marketing campaign. Now those guys that have been nipping at your heels with their competing product are going to get left behind and you’ll have the first mover advantage. You are getting your product to the market much sooner and in a stronger fashion than you could had you have just kept on the current course.
All things in life have trade-offs and VC is no exception. How do you feel about ceding much of the control of your company to someone who might see things differently than your vision? Worse yet, if there is conflict about the vision, you might find yourself voted out of the company by the board members the VC firm installed.
There have been instances where the VC firm actually ruined the startup their cash injection was meant to help grow. VC is always marketed by the press as a sign of a startup’s arrival but it can also mean conflict, hindrance of the initial goals and possibly the end of the company all together.
So how do you measure the trade-offs and decide which way to go?
Here are couple questions and their answers:
· Do you need to get to market now as you have other competing startups right behind you? Take the money.
· Are you making a decent profit and seeing moderate growth with few competitors? Skip the money.
· Are the big guys bringing in consultants and toying with your niche in the market? Take the money.
· Are you yet to make a profit and wondering if you ever will? Definitely take the money.
· Is your product or service a take on others already in the market that is just mildly disruptive but hard to replicate? Reject the money.
· Do you have a vision for your company that you feel others might never understand? Skip it.
· Is money more important to you than control? That is a pretty good reason to take the money.
· Just flip the statement and answer above around to their opposites.
· Is your product or idea very capital intensive? You have no choice but to take it.
Those are just a few basic questions to ask when approached with VC. It can be a great thing, but it can also be unnecessary and destructive. Weigh the trade-offs, don’t get dollar signs in your eyes and ask yourself honestly where you see the business in a year with it and without it.
You might surprise yourself and realize you don’t need it.
Brian McKay is a co-founder of zenruption and has his MBA from Boise State University. Right now he is thinking he’d take it, but doubts it will ever be offered to him. Oh well, the weekend is close.
Feature photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license