How Getting Venture Capital Can Harm A Start Up Company

hands arranging coinsVenture capital is one of the alternatives many start ups go to when trying to gather funds to put a business project or idea moving. They are provided by professional fund managers looking for start up prospects that can provide handsome turnovers in the future. While some entrepreneurs may welcome any other form of funds to add up to their war chest when starting their company, getting some venture capital may have an effect on how the business will eventually work, both good and bad. There are some instances where venture capital may even cause harm to a start up. Here are just some of them.

Obtaining Venture Capital Can Cause Complacency

Access to venture capital can provide a start up with opportunities to obtain insane amounts of funds for capital, depending on how attractive your business idea can be and how you present it. If successful, entrepreneurs can sometimes be offered way more that what they would need to start the business. Having insane amounts of funds for the company  can sometimes breed complacency, once a fledgling company acquire some of the venture capital. Some entrepreneurs may consider receiving some venture capital funding as a success for the business. This mindset can lead to some people to neglect working harder to make the start up an even better success and just rely on venture capital funding for their business success.

Too Many Hands Running A Business

One of the pitfalls of venture capital funding is that entrepreneurs may experience a change of focus, especially on how they run the business. Venture capitalist funding usually comes with a request for the investor to be a part of the company’s board. The investors would like to have a hand in trying to run the business. In part it may be good since a start up may benefit from the experience of seasoned investors. But the opposite can also be the same, especially when the investors really do not know what they are going into.

You Focus On The Making Investors Happy, Not Your Customers

Once a company gets venture capital funding, there are certain concessions they need to agree to. The investors expect profit from their investment. With the sizable amount of venture capital funding that is usually handed out, it becomes an added pressure for the start up. Profitability to make investors happy becomes the focus for some start ups, with the expectation that they will get some added venture capital funding in the future if they make the investors happy. This can sometimes put another important factor of any business on the wayside- making the customers happy. Start ups forego prioritizing customer satisfaction into investor satisfaction. It won’t take long before the business falters because its customer base starts to dwindle and along with it, potential business profitability and success.

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