ALLOCATION OF SHARES TO VENTURE CAPITALISTS
First thing, which comes into mind before starting startups is funds, and normally questions come in mind that how to approach potential investor who ready invest in our idea.
Everyone knows this fact that it is hard to convince anyone to invest his money in our idea. Being startup, it is difficult initially to go for an IPO and some other sources.
Venture Capitalist could be best potential source because these have large pool of fund and ready to take calculated risk by investing in start-ups. These firms normally invest in innovative projects, not in traditionally projects. Venture capital is also known as seed capital or fund.
This could be best source for those entities which does not have operating history to eligible for traditional sources like banks.
ADVANTAGE OF VENTURE CAPITAL FUNDINGS:
Apart from financial backing, getting funds from VCs can provide new entity or start-ups valuable inputs from industry as well as expert advice which includes varies business decision, financial decision, business growth and so on. These expert opinions can be immensely important for business success and avoid many of the pitfalls, usually associated with startups.
2. Resource Pool: During the initial phase of start-ups, legal, taxation and personnel issues are the critical areas which most of the time neglected by young entrepreneur due to lack of experience. Venture Capital firm provide support in this area as well.
3. Larger Network: Venture capital firms are aware of all information and they have insight view of what’s going on in the industry.
DISADVANTAGE OF VENTURE CAPITAL FUNDINGS:
1. Lesser control over management:
Venture Capital firm injects large amount of cash, therefore they want to involve in every decision which could results into delay in decision making. Even Venture Capital firms are more aggressive in their approach to manage business.
Therefore, young entrepreneur starting loosing the interest in business management and may become the puppet in the hands of Venture Capital Firm.
2. Minority ownership Status:
Due to large stake of Venture Capital Firm in business, inventor of start-ups ideas become minority shareholder.
3. Troublesome: Venture Capital funds are not easy to obtain. Unless they are convinced by high rate of return, chances are very less that they invest in your ideas.
4. Privacy of Business Plan: Normally, Venture Capital firm refuses to sign a Non-Disclosure Agreement due to legal consequences which may put idea at risk.
Before opting this source for your funds, make sure you thoroughly research on each and every Pros and Cons, otherwise business may be turn down.