Should You Take Venture Capital?

Tuesday, August 21, 2007 at 9:00pm by Site Administrator

[editorial] You’ve seen the big money deals all over the place: startups being purchased or being funded. Talking about venture capital on a blog about bootstrapping may seem odd, but there’s nothing wrong with accepting investment capital if you can’t find alternative financing. Or is there?

On one hand, VCs are make more smaller deals – especially for early-stage investing. So if you’re looking for it, you might have a chance at venture capital. On the other hand, Anti-Venture Capital gives 10 reasons not to take venture capital.

The latter article actually reminds me of my original opinion of venture capitalists back in the 1990s. But lately, it seems VCs at the very least get a lot of coverage in the blogosphere. I don’t see much negative commentary. In fact, this is the first negative view of VCs I have seen in a very long time. The scary part is that a lot of it makes sense.

Aren’t VCs just in it for the potential of profits? They do need for your business to eventually succeed at some level, or they can’t cash in. But where’s the line drawn? What are you giving up by accepting VC? Will you get as much as you think? Bootstrapping is much harder but is always the option that ensures you don’t reliquinish control.

I don’t want to wax too philosophical here, and maybe I’m pretty cynical, but I don’t for a minute believe that there are more than a handful or two of VCs who are truly out to lend you money simpy because they like your idea. That is, most VCs are in it because they see an investment opportunity, not a humanitarian opportunity. Their role is to seek out financial opportunities, whether for a private firm or a publicly-traded company.

So it boils down to this: if a powerful company really badly wants your business or technology – even if just to get it out of the way, like what happened with many Canadian solar patents – they’ll get it some way or other. (If you don’t believe that, you’re immensely naive.) Companies are run by (flawed) humans, not intangible ideals. Venture Capital firms are companies, and their agenda is to flip transactions for profit.

If you don’t like the power that VCs could have over you, don’t take venture capital, don’t seek it out. If you don’t want to swim with sharks, don’t dip your toes in their waters. Bootstrap your finances and build as you are able. You could also seek funding from family, but that brings its own problems. Consider all the alternatives to financing your business startup.

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