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Benefits of getting funding for your business from a venture capitalists (VCs) firm.

13 Aug

In my last blog, I have provided you with multiple reasons on why you shouldn’t consider takVenture Capitalistsing funds from a Venture Capitalist (VC). Apart from the constant stream of funding from these VCs, there are other benefits that comes inherent with working with VC firms. And hence, in this blog I would like to tell you the other side of the story.

Free management consulting: If you are a first time business owner, or slightly weak in handling all the aspects of the new business, then it might not be a bad idea for you to pick an experienced VC with some knowledge /expertise that you might not have. If you pick a VC, who has started his/her own business before, then he might be of a great help in writing a strong business plan, making a killer product, or keeping your finances straight.  In order to get the best VC for your venture, do your self assessment first, and then find out a partner who compliments you. Because most VC firms will have equity in your firm, their desire to help manage your company could be a boon to you if you don’t have those skills.

Access to free workforce: Most of the time, as a new business owner, you might not know everything that you need to know about opening up your own business, but you can get some outside help. And this kind of help is mostly available with many VC firms. Most of the VC firms provide expert business consultants on their payroll who can help you with things like marketing, distribution, research, and more. Having this open channel of help with the expertise that your organization might lack can improve your ability to compete in your space.

Find the brightest talent: Recruiting intelligent and hardworking people for your startup is going to be a challenge for you. But if you have a well connected VC as your partner, then the firm can help you find people with the specialized skills needed to help your business grow. Some firms even have HR people to help the companies they’ve invested in staff key rolls. This can be of huge benefit to you who want to mitigate the risks associated with hiring the wrong people for key rolls.

Although your banker or other financing source has an interest in your success, sometimes you will be better off by taking the funding from a VC firm, for all of the above reasons. Please share your comments here, if you agree/disagree with my blog.

Thanks – Bhavin Gandhi

 
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Posted by on August 13, 2014 in 21st Century, Leadership, Management

 

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Why should you not take funds from venture capitalists (VCs)?

15 Jul

Venture CapitalistDuring my career, I have helped numerous businesses in creating their business plans and acquire their initial funding. Though most of the time, I have connected these new business owners with the venture capitalists (VCs) that I knew, it might not be the right kind of the funding option for many businesses. Following are the few reasons for that.

Selling your equity: I don’t think that giving up your equity is necessarily a pitfall if your investors have the knowledge and the contacts required for your business. VCs can sometimes help you build a thriving and growing business. But they can have many pitfalls as well. Most VC firms require you to give up an equity position. It won’t be small part of your business as well, most of the times they are looking for at least 30-60%of the equity in your business. If you (by chance) choose a wrong investor, then it might create future problems while  selling your company.

No immediate funding: Unlike the bank loans and other kind of funding, VC’s funding is not immediately available. Most of the VCs set goals and milestones for the release of funds. 80% of the time, funding is released in stages and is usually allocated for growth and expansion of the business. I’m editorializing here, but expansion with an eye toward sale or public offering might not always be the best kind of growth.

You are not the only manager: Most of the time, VCs want to be added as a member of your company’s executive team. Don’t get me wrong, this is not always the worst thing to happen. If this is your first business venture, an experienced VC on your executive group will be a huge help. But you can also be put in a difficult situation, if you guys have any disagreement regarding a decision. Most of the VCs wants to lead the company to the path that will reap their anticipated financial reward, not necessarily the best decisions for the company’s future.

Business secrets become public: When you approach a bank or other small business finance company, it’s customary to expect that they will sign a non-disclosure agreement regarding your business plan and what you want to do. This is not the case with venture capitalists. As I have mentioned earlier, most of the VCs want to be invested in the company in the executive position, or as a decision maker, and hence, most of the time they refuse to sign such agreements.

You can’t call all the shots anymore: Don’t get me wrong. Having multiple people on your board of advisory will help you to understand multiple opinions (view points), and then take an educated decision. But if you happen to choose a wrong investor for some reason, that might not workout well for you. One of the biggest challenge that you will face after accepting the funds from a venture capitalists is to give up many of the key decision taking powers, which you would otherwise have. VCs usually want a lot of influence over key decisions and they don’t always agree with the founder. Their equity position gives them a seat at the table when it’s time to make important decisions.

I hope, my view points will help you to think twice before accepting some kind of a funding from VCs. Please share your comments here, if you agree/disagree with my blog.

Thanks – Bhavin Gandhi

 
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Posted by on July 15, 2014 in 21st Century, Leadership, Management

 

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How can you raise some capital for your business without selling the part of your business?

26 May

RaiseCapitalForYourBusinessEvery day, thousands of small businesses and start-ups wrestle with the challenges of finding the cash that they need to finance the growth of their business. But most of those new business owners don’t know what are all the avenues that they have at their disposal for getting some cash. Thus, in this blog post I am going to provide you with few ways through which you can raise some capital for your business.

Ask your friends: This is the easiest way to raise some money. Most of the startup businesses start by taking some money from their friends or family. I know, it is really uncomfortable to ask some money from your family/friends, but it doesn’t hurt to ask. Don’t just go and ask them for money. Try to explain your business plan to your friends, and tell them about your strategy to pay them back. This approach provides them with more confidence in investing in your business.

Real estate loans: These are simpler kind of the loans that anyone can take for their business. These loans are based on the value of the real estate offered as a collateral. Most of the first time business owners take these kind of loans by putting their primary or secondary residence for collateral. But you can also include office buildings, warehouse space, retail storefronts, industrial facilities, and stand-alone buildings in the mix too. This might be the easiest way to take some money out of your existing assets.

Equipment financing: Let’s say, you are opening up a manufacturing plant, and you require some money for buying a new equipment, then you can use this particular way of financing to finance your business. When you finance an equipment, which are  strictly used for your business, the equipment purchased, itself, can be considered as a collateral for the loan. Although equipment financing is used exclusively to acquire business-use equipment, it is sometimes used to obtain cash by borrowing against business equipment you already own.

Merchant cash advance: Most of the small businesses in good standing can borrow some cash against their future earnings. Once you get that kind of financing, you can repay that loan by a daily/weekly withdrawal from the business merchant account. Repayment terms are typically six months to a year. For more information about this kind of a financing option, please visit this link.

Franchise loans: If you own a franchise like Subway or Mc Donald, you can opt for this kind of financing for your business.  These loans are similar to common business and commercial loans, but they are generally designed to finance the purchase of a franchise that can demonstrate an established history of profitability. Since this kind of a loan is dependent on the sale of the established franchise, these kind of loans are comparatively easier to get.

Microloans: There are various services available out there for Microloans. These kind of programs generally provide very small loans to new businesses or for some small business growth. Most of the lenders are non-profit organizations that offer government funding, while others are private investors who wants to invest some small amount of money in a small business  in return of some interest. For more information about these kind of loans, please check out this link.

I hope, my tips will help you to raise some cash without selling the part of your business to a heartless venture capitalists. Please share your comments here, if my blog has helped you in finding your own cash.

Thanks – Bhavin Gandhi

 
5 Comments

Posted by on May 26, 2014 in 21st Century, Leadership, Management

 

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