6 Reasons VC Funding Isn’t Always the Best Goal

6 Reasons VC Funding Isn’t Always the Best Goal

Venture capital funding is to tech startups what the Wizard of Oz is to Dorothy — a longed-for solution to a central problem, imbued with a sense of power and even magic. Many startup founders see snagging VC funding as a major goal. But many end up finding that VCs are too often what Dorothy discovers the Wizard to be: a chimera — extremely difficult to access and possessed of some major drawbacks.

Here are six reasons that getting VC funding isn’t always the most constructive goal for your business.

1. VC is absurdly hard to get

VC funding is hard to getMost startups will never receive a big check from a VC. Yes, VC money is flowing more than ever — 2018 was a banner year for VC investment. But still, a tiny fraction of businesses actually receive that funding. A start-up founder who turns to a typical VC firm that funds 0.2% of applicants has a far better chance of getting into Harvard Business School than receiving a Seed Round.

2. Seeking VC is time-consuming

Seeking VC funding is time consumingRaising VC capital take a lot of work and time — the process can equal six months of full-time work. It’s a shame to have a business’s leader pouring a huge amount of time into this project, only to come up empty-handed. Even when they don’t come up empty-handed, it is still time they are devoting to chasing funding instead of to managing the day-to-day affairs of the business and its growth.

3. VC is expensive

Venture capital is expensiveThe cost of borrowing money varies widely depending on the source, and it just so happens that VC is a very expensive source. On average, VC costs more than 25% a year, which recipients may feel they can justify due to the exponential rate of growth they accomplish using the funding. But what if you could grow — albeit not necessarily as rapidly — and do it at a much lower rate?

4. VCs take a lot of control

Venture capitalists take control of companyVCs take a large percentage of ownership in the companies they fund, and they expect these startups to grow at break-neck speed. This means that VC funders exert strong control over the operations of each business. Non-VC funding options allow owners to maintain more control of how their business runs and how fast it grows.

5. VCs demand an exit

VCs demand an exit strategyVCs make their money by cashing out of their investment at a given time, which means that there must be a way for the funders to exit the business. If you’re not sure whether you want to sell or go public with your business, VC funding may be a poor fit.

6. Uncertainty spooks VCs

Uncertainty spooks VCsIn uncertain times, VCs are apt to be cautious about new investments. When things seem shaky, they often double down on those they already fund. Other types of funding, such as the revenue-based, non-distributive funding we provide at Lighter Capital is more likely to remain available to many startups, even in times of uncertainty.

VC funding is a great fit for a small number of businesses. For most, it isn’t a great fit and should probably not be a goal. Instead of chasing VC, you may be better off thinking about how you want your business to look, how you want it to grow, and how much ownership you want to maintain, then set your goals vis-à-vis fundraising based on those ideas. Alternate funding approaches like Lighter Capital’s “Capital-as-a-Service” are more likely to sustainably support SaaS startups.

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Looking For Funding?

Looking for Funding?Exploring funding options for your tech startup? Ever heard of revenue-based financing? In short, a company pays a percentage of future revenue to an investor in exchange for capital up-front. With Lighter Capital, entrepreneurs can receive from $50,000 up to $3 million in capital to help you get your startup to the next level, without giving up equity or control of your company.

The loan payments are tied to monthly revenue, going up for strong-revenue months and down for low-revenue months. Visit here to see how it works, and if you like what you see, apply for funding today to connect with our investment team!