Today venture capital has emerged as a powerful tool for entrepreneurs. It allows them to raise capital for business growth and expansion. Anand Jayapalan had previously spoken about how venture capital (VC) can especially be a great source of funding for startup companies and small businesses. VC firms essentially invest in companies that have high growth potential.
Obtaining venture capital can have a number of advantages, especially for fast-growing startups wanting to scale fast. The top advantages of venture capital include:
- Provides access to larger amounts of capital: Several startups requiring funding may only qualify for $5 million or less in traditional business loans. Moreover, it is not easy to meet banks’ eligibility requirements for business loans. On the other hand, many VC firms can offer funding from $100,000 for startups in the seed stage, to even as high as $25 million for more mature startups. Startup founders may also potentially raise venture capital several times, enabling them to gain access to more capital than traditional bank loans.
- No monthly payments: As a VC firm invests in a business, they do so for equity in the company. This basically means that unlike small business and personal loans, one would not have to make regular monthly payments to pay back the money. This would free up the working capital of the business, enabling them to reinvest the funds by further expanding operations, hiring a larger team or improving products.
- No need to pledge personal assets: There are several business financing options available today that would require startup founders to pledge some form of personal assets as collateral. On the other hand, venture capital agreements usually do not require a pledge of personal assets when the agreement is drafted.
- Offers expert business management assistance: Several venture capital partners tend to have a good level of experience in solving business challenges, scaling companies, as well as monitoring the financial performance of a company. Even if they do not have a startup background, they are likely to have experience with assisting startups and serving on their boards. The guidance of venture capital partners can help startup founders to navigate risks, hire the right people, as well as get their company on the right path to growth and success.
- Comes with networking opportunities: Partners at a venture capital firm spend a good amount of time building their network so as to assist the companies they invest in. These connections help startup founders to forge new partnerships, grow their client base, and raise future rounds of funding.
- Offers assistance with hiring and building a team: The team a startup founder would need to start a company and scale their business is often not the same. Venture capital partners can help startups to get key people in place at the company to support its growth. Moreover, today several potential employees tend to consider a venture-backed startup less risky in comparison to a traditional startup with no funding, making it easier to recruit a talented and well-rounded team.
In the past, Anand Jayapalan had underlined that venture capitalists are experienced investors who know how to spot a good investment opportunity, are willing to take risks and invest in companies with high growth potential. They typically maintain a hands-on with their portfolio companies, and provide valuable advice and guidance on how to grow the business.
