Opinion

Is VC Funding the Best For Your Startup?

VC funding - cfamedia

In 2018, a report showed that Startups from Africa countries secured 51 VC funding globally, with millions of dollars in investment. In 2017, VC funding was $83 billion. This indicates that an explosion in the rate at which funding comes through Venture Capitalists.

Entrepreneurs with the ownership of Startups have the notion that obtaining VC funding is the fastest route to scale for success. This appears to be quite true looking at the amount of funding that gets secured through Venture Capitalists, compared to other types of funding.

There, appears to be a shift of focus, from the entrepreneur to the VC investors. How? The primary aim of funding a viable product or service is for the entrepreneur to scale and provide innovation to the market, but entrepreneurs are left guessing at how the VC’s are stealing the show.

It is in the realm of speculation, as to whether VC lending is actually a way of securing funds for Startups. Emeric Ernoult noted, “If the type of business you want to build cannot get built without raising a significant amount of capital, do it. If it does not, focus on building a good product, finding a product-market fit and getting early traction. That’s the only goal worth pursuing.”

These are some questions you should bear in mind before you pursue that dream of VC funding

Why Start A Business?
Ask an average entrepreneur, why he went into business? The answer is usually about achieving the dream of making a financial breakthrough and simultaneously, proffering solutions to an identified problem in the society. Ordinarily, nobody would be willing to give up this dream to some group of investors.

Some of them abandoned their work in the corporate society with the hope that they would be free of the high demands of their superiors, yet they end up in the hands of investors who can squeeze out their life’s essence.

No doubt that a Startup requires funding to be able to compete with established companies, but care should be taken in the choice of funding. You do not want a bad choice to impact your potential profitable business model.

Does Your Timing Allow Business Growth Organically?
There are basic steps required to take, in the process of a business development that will get you established and ensure a working relationship with your customers, but it has been discovered that some Startups speed up this process and has, thus, led them into financial difficulty.

Startup companies that lack proof of organic growth should not fall into the trap of raising funds in excess in order to prevent your VC investors from thinking that you have a realistic growth expectation.

Evan Walker, Founder of Route, noted, “It sounds pretty basic, but I always avoid raising too much money too early on, proving out the concept of our business, then using VC money strictly as a growth catalyst as opposed to figuring out our business model. This aligns the interest of both our companies and the VC with clear expectations of our next stage of growth.”

What Stake Would Be Left At The End for You?
According to Crockett, for the average Series A round, investors expect a 25 percent to 50 percent stake, for Series B, they expect around 33 percent. After a few rounds, a Founder is considered lucky, if left with 20 percent of what he or she created.

You do not have to tow this path before you make it big. What you need, are meager amounts of funding coming in at intervals

MailChimp disrupted its industry with a simple idea and some seed funding. VC funding wasn’t necessary for MailChimp to scale.

What Is Your Risk Level?
No venture is worth taking without considering the risks involved. Part of a Startup strategy is to evaluate the risk level.

It is your duty, as the entrepreneur, to know the limited partners, the number of boards, the industries they are based and where they are in the cycle of funding. These are things you should ensure, you identify.

Before your next pitch, consider the steps above. Only this will ensure that you have a real financial gain in the investment.

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