Venture capital

Before deciding on venture capital funding, you should consider the possible benefits and drawbacks.

Advantages of venture capital

Raising money through venture capital can have many benefits, including:

• Access to larger amounts of funding - typically over £250,000.
• No monthly repayments - as a venture capital company invests for equity, monthly repayments are not required which ensures working capital is available for your business.
• Expert business management support - most venture capital companies have relevant previous experience so you can benefit from expert advice and problem solving abilities.
• Networking opportunities - venture capital organisations have many connections, including other start-ups and businesses.
• Possibility of future funding - venture capital companies are keen to see your business raise additional funds as it increases the return on their investment.

Disadvantages of venture capital

There are also potential drawbacks to venture capital, including:

• Risk of losing business - if your business underperforms, investors may pull out of your agreement.
• Reduction of ownership - especially if additional rounds of funding are required, founders can gradually lose more equity, their decision-making abilities and control of the company.
• Attention diverted from the day-to-day running of the business - a lot of time has to be put into raising funds and ensuring the business meets the venture capital organisation’s standards.
• It can be difficult to get approved - venture capital businesses will need to see that your business is suitable by accessing your business plan, financial forecasts and other documents as part of their due diligence.
• Expensive process - you may notice the cost of the equity when the business is sold as your shareholders will have a right to a certain percentage of the business.