Disadvantages of Venture Funding
Almost all entrepreneurs think of venture capitalists when they are planning to expand their business or start a new one. For the past few years, venture capitalists have been the main source of funding for thousands of business, technology, Internet and biotechnology companies.
However, there are some problems associated with VC funding. A major limitation of VC funding is that many venture capital firms are very industry specific. Rather than go solely by the merits of the business plan, some VC funding companies are guided by the nature of the company.
Another limitation of VC funding is that venture capitalists often demand to be on the board of directors of the company that they are funding. Often this disintegrates into the venture capitalist acting as the CEO. Some business owners complain that as soon as VC funding rolls into the company, the role of the founder shifts from critical company building functions to preparing reports, attending meeting and writing memos.
In addition some business owners say that as the first dollars of VC funding rolls into a company, venture capitalists begin to get meddlesome and start trying to call all the shots for running the business.
VC funding also brings with it tremendous pressure to create profits quickly. This could lead the founder to make some bad judgment calls or even launch products too early or into the wrong markets.
Some of the terms accompanying VC funding and the demands made by some of the venture capitalists can lead to eroding of team spirit and loss of commitment by employees to the products.
Most venture capitalists get their money from various institutional and pension fund investors. Like other investors, venture capitalists also go through a process of raising funds. They do this by raising funds from foundations, endowment funds and retirement funds. As venture capitalists are investing other people’s money they often tend to try and be in a position of control in the company. As a result most venture capitalist firms demand a seat on the board of directors and stock options as part of VC funding.
Despite the numerous disadvantages surrounding VC funding for many business owners it is the only source of funds. Venture capitalists often offer VC funding up to several billion dollars. For some entrepreneurs VC funding is the only option by which the entrepreneur can realize his or her dream.
For more resources about Invest capital or even about small business investment company and especially about business investor please review these links.
For more resources about Invest capital or even about small business investment company and especially about business investor please review these links.
Article Source: ArticlesBase.com - Disadvantages of Venture Funding