Should Your Company Take Venture Capital? 5 Key Questions

This article shares five critical questions that can help you decide whether or not to take venture capital funding for your company.

• How badly does your company need the cash?
• What is your company's endgame?
• How will the money change your company's direction?
• How much are you willing to get diluted?
• Is there another way to reach your company's goals?

1) How Badly Does Your Company Need the Cash?

The author shares his own experience with taking a $1M convertible note from a small group of angel investors. He emphasizes that his company didn't actually need the money but had the option to take it.

• If your company isn't running out of cash, carefully consider whether you can grow on your own.
• Traction and growth can lead to more leverage and better terms for future funding.

2) What's Your Company's Endgame?

The author highlights that top venture capital firms are looking for billion-dollar exits. He personally wasn't interested in turning his company into a billion-dollar company but rather building a long-lasting business he enjoyed.

• Your company's goals and your investors' need to align.
• If your goal is a billion-dollar exit, venture capital funding might be the best choice for you.

3) What Will the Money Change?

The author realized that his company's product wasn't mature enough to offer real value, and taking in more funding could have led to scaling a subpar product, resulting in unhappy customers and ex-customers.

• Ensure your company's product is ready for scaling before taking on significant funding.
• Being over-funded can harm your company's growth and success.

4) How Much are You Willing to Get Diluted?

The author discusses how a founder friend was diluted so much that he believed taking a job would offer better financial opportunities. Every time you give away equity, your company needs to perform even better to achieve your personal goals.

• Carefully calculate the impact of dilution on your company's financial goals.
• Evaluate whether your company can still succeed with increased financial pressure.

5) Is There Another Way to Get to Your Company's Goals?

The author decided not to take the venture capital funding because his company's goals could be achieved through revenue growth. He believed that his company could reach $100,000 in monthly revenue, which was enough to meet their objectives.

• Take advantage of resources available to help your company grow organically.
• Don't assume that funding is necessary for your company's growth.

There's No Best Answer

The author concludes that there is no single right answer when it comes to taking venture capital funding. Some companies flourish with institutional investors, while others thrive through bootstrapping. The best decision is based on your company's unique situation and goals.

• The decision to take funding should be made carefully and strategically, considering your company's current stage, goals, and market environment.