There are a number of sources of early stage funding: SBIR grants, angel investments, bank loans, credit cards, your friends and family, consulting revenue, but it appears that any time somebody contains a great idea (or thinks he will), that his immediate reaction is "I'll fund this using venture capital."
Venture capital positively has its place within the finance and investing world, however it's not the only source, nor forever the simplest source, of early-stage capital.
Venture capital is best at providing a massive chunk of money for a business that's growing therefore fast that money desires just cannot be met through revenue generation. The goal is to grow the business therefore giant that irrespective of how a lot of of the company the VC owns, everybody gets rich.
When Not to Raise Venture Capital
If you have a technology that's still within the course of development, venture capital is probably not the best source of funds. If you're still developing a product and don't have any revenue and no means for revenue within the close to future, the valuation you may get from a VC can take such a giant chunk of your equity, that you'll have solely a tiny portion left after subsequent rounds.
If your goal is to urge your technology developed and into the globe as quick as you'll be able to, you may be satisfied with a small return on all your onerous work. I have met many entrepreneurs who feel that method once they are raising an investment, however feel terribly different when the corporate is sold and they are left with nothing but the power to point to the technology and say "I invented that."
If you're selling a product and growing revenue, but are desperate for money, raising venture capital may be a good way to lose a giant portion of your company because while you are raising cash, you will solely become a lot of desperate and willing to take any deal that is place on the table.
When To Raise Venture Capital
? Seed capital - if you've got a working prototype and have a cheap expectation of multiple orders upon manufacture, seed capital ($three-5 million) might be simply the thing to build your producing facilities or complete your product design. If you actually have a product and actual (I mean, real, ready with money) customers ready to buy your product, you will be looking at leaving behind twenty% or so at this stage.
? Growth capital - if you've got been selling your product and simply cannot sustain with demand, a second stage round may be appropriate. Let me be clear, you need this capital to extend your production or to hire additional salespeople to handle more territories or hire customer service people. Again, you'll provide up another 20% of your equity.
? Acquisitions - if the simplest way to grow your business is to accumulate your competitors or a complementary service, venture capital is a good supply of capital as well. The quantity you give up depends on the deals you are creating and where you are.
I see several entrepreneurs who assume that venture capital is the simplest approach to boost capital (not so) or who are just not willing to risk their own capital (in that case, get employment). There are more ways to financing your company. Build positive that venture funding is the proper means before you begin down the fund raising path.
Author Resource:-
Bob has been writing articles online for nearly 2 years now. Not only does this author specialize in venture capital,you can also check out his latest website about:
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