When you start a business, you may either go for crowdfunding or seek assistance of a venture capitalist or an angel investor. The easy inflow of cash helps an entrepreneur jumpstart a business in the way one wants. However, boon and bane in a business is co-existent. With benefits, there are also multiple drawbacks of raising venture capital.
Raising capital often seems to be the best option while starting off a business. But one should also keep in mind the drawbacks of raising venture capital. With a high disposable capital at hand, entrepreneurs are able to achieve milestones easily. However, they should also be wary of all the drawbacks of raising venture capital.
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Delay with investment
Engaging available capital as soon as it is available is something that every entrepreneur looks forward to. However, it is always better for an entrepreneur to prevent oneself from using the capital. Once you accept, you may be easily able to achieve your targets, but you already lose a considerable share of your company to the investor. For capitalists, ROI is the main target of their business. Only when you are able to achieve it, it would lead you to your success.
Quality maintenance is tough
If you think it straight, raising capital should be directly related to employing highly skilled and experienced professionals. However, it is not always true. One of the drawbacks of raising venture capital is that you may hire a number of people with mediocre quality, which you would not have done otherwise if you were tight on your hiring budget.
When you are on a stringent budget, you would look for a single professional who is best at his task.
Entrepreneurs are often short of fund. This leads to delayed achievements of targets and objectives. However, presence of a bulk amount of capital at hand too is not wise. This often leads to entreprenuers taking reckless decisions and indulging in unnecessary expenses. This may lead to shortage of fund when in genuine business need.
When you raise capital for your business, you also open the doors for external influences. Your investors will not have a very good knowledge about your business and its workings. They would be looking forward to the returns that the business would earn. Often, these investors tend to interfere in your day to day workings of the business, providing suggestions. These suggestions may be helpful for your business only if the investor has previous experience on that subject.
That there are drawbacks of raising venture capital, cannot be ignored. However, an entrepreneur should try to keep the requirement of investor capital to the minimum to prevent mismanagement of funds.