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Are You Considering Accepting Venture Capital Money? We look at the Pros and Cons

Posted by Eric D. Anderson | Sep 01, 2019

One of the greatest hurdles that most new businesses face is a lack of capital, so when a venture capital firm comes along and wants to invest, it could feel like a godsend. Like any business deal, though, there are both advantages and disadvantages of accepting venture capital money.

Venture Capital on Direction Arrow Sign.

If you want an experienced ally by your side the next time you have to negotiate a deal, turn to a contract attorney from Eric D. Anderson Law, LTD. Call 909-283-5494 to speak with a Redlands business lawyer about keeping your company's best interests at the forefront of negotiations.

According to the National Venture Capital Association, venture capital firms across the United States doled out $58.8 billion in 2015. Most small startups could benefit greatly from a portion of those funds, but it is important to remember that for every benefit of working with a venture capitalist, there is an obstacle of some kind.

Pro: Liquid Capital

The most obvious benefit of working with a venture capital firm is the influx of cash. Startups can use this money to attract new talent and cover their salaries or produce inventory, advertise their products, and cover the monthly bills; however, investor Vincent Bradley tells Entrepreneur readers that acquiring money from venture capital firms should actually be their last resort because of the many drawbacks.

Con: A Shift in Power

Once you bring on investors, you have someone to answer to, and your company will experience a shift in its power structure. For some businesses, this shift is small, but for others, it could result in major changes across the board and affect everything from product development and marketing to personnel and company culture.

Pro: New Markets and Investors

Investors want to see their money grow, and they will often introduce their investments to new markets and other financing opportunities to ensure that happens. In addition, other investors will see that someone is taking you seriously, and they may be inspired to strike a deal, as well.

Con: An Uncertain Future

Many venture capital partners enter into a deal with the ultimate goal of selling the company or taking it public. If either occurs, your future at the company is uncertain. In addition, regardless of your investors' long-term goals, you could feel the pressure to exit early on if they have short-term changes in mind that they want to implement.

If you have the opportunity to work with a venture capital firm, that means others see value in your company, and you may not want to exchange a portion of that value for their money. There is a lot at stake when it comes to bringing on investors, but there's often more at stake when you attempt to make it alone. Do your research before signing on with a venture capital firm to ensure you understand what the new arrangement means for your company.

If you are planning on changing the structure of your company by bringing on investors, turn to a business lawyer from Eric D. Anderson Law, LTD for help with negotiations. Call 909-283-5494 to schedule a consultation with a Redlands contract attorney.

About the Author

Eric D. Anderson

Eric Anderson: Civil Trial lawyer, Criminal Defense Lawyer, Sin Lawyer

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