Top Reasons why you should stop looking for VC funding
Venture Capital funds give a wealthy investor the chance to invest in a company’s startup stages with a long term growth perspective, as startup companies have potential of explosive growth. These investments are capable of high gain and returns but they are also associated with high risk as liquidity is very less. Since it is a ball game of high stakes, the investors or Venture Capitalists (VC) have the power to influence major decisions of the companies as their capital is at stake.
In the past three decades, lots of companies especially in the Information Technology have evolved with VC funding. United States is the creator and leader of the Venture Capital industry and Silicon Valley bring the hub. The Venture Capital Industry has gained traction in the past few years with explosive growth in E-Commerce. A venture capital fund can get involved in five stages in a startup, namely the seed stage, start-up stage, second stage, third stage and finally pre-public stage. Statistically speaking, most of the VC funding happens in the seed stage. A recent study in Harvard Business Review shows only one percent of 60,000 startups managed to secure funding.
During this age of startup companies, it is extremely important that idea needs to become a reality at the earliest. If you think that you have a killer idea for an app for a B2C or B2B space, then it becomes very imperative that it should be developed at the earliest and taken to the market before it gets competitive. In these circumstances, waiting for a Venture Capital fund to invest in an idea alone is not sufficient due to the cut throat competition. The start-up arena has evolved significantly in the past three decades. The venture capital investment process is a complicated one and potential companies are vetted thoroughly before they are committed to any capital. Statistics have shown that less than 1% of the start-up manages to secure VC fund, that too in the seed stage. So, in this scenario, the best way is to go bootstrap in the seed stage. Besides, there are also private investors who use their own capital to finance a startup company. Instead of planning to raise a huge amount and then getting started, plan to raise a seed capital - a small amount from savings and friends of company founders. Once started, then go and look for seed funding to improve product and sales. It is very challenging to raise capital until the company has a unique product and a dedicated team. After the seed capital, the first round of funding for a business venture is known as the Series A Round of funding.
Startups get so consumed with meeting investors or preparing for interviews that they lose focus on their business, product and customers. It is better to spend time on improving the product and delighting customers. This would involve outsourcing mobile app development
to low cost locations, from United States to India which would lower your cost by 25-30%. The aim at this level is to develop the app at the earliest and release it in the app store. In the past three decades, Indian engineers have carved a name for themselves around the world for their technical knowledge. Thus getting the app developed in India will be a wise decision due to easy availability of great technical minds. Moreover, selling a prototype app with minimum features is better than selling only a conceptual idea to the venture capitalists to secure Series A funding.
Venture Capital funding comes with lot of riders. Foremost, one will have to sacrifice a percentage of equity, profits and board control that would directly mean giving up the veto power and handing over the decision making power of your company in a platter. In other words, one is not in the control of the company, one had founded. They even get the right to hire and fire anybody from your team including you from your own company.
Venture Capital Funded start-ups, tend to concentrate more on the investor rather than the product, that delays schedules and hence prompts more competition in the market . The burn out rate at which the company spends the capital is much higher in VC funded as compared to bootstrap, as you lose control on the spending. It becomes difficult to stay lean with other's money. Lastly, if you go for VC funding, your goal gets directed on the When and How queries of the exit route and you lose focus of building a company that would last, grow and finally succeed. Though Venture Capital is important to the US economy but the secret is, only few VC firms get started and even fewer survive. There have been instance of many technology start-up with killer ideas and products that went bust. VC firms should consistently perform well in order to receive one fund after the next. All your efforts are targeted in growth in place of profit and one is caught in a vicious circle of raising more money from VC, here by losing more control. The moment one fails to raise the money, the company will collapse!