5 Reasons You Don’t Want Venture Capital

Many entrepreneurs dream of raising millions of dollars in venture capital.

What most don’t realize is that achieving that dream may actually mean creating their own nightmare. You see, closing a VC deal for millions of dollars is not a destination at the end of a long hard journey. It’s the beginning of an even tougher road that most business owners have never traveled before.

If you are an entrepreneur dreaming of raising your first round of venture capital, let me give you five reasons you don’t want to see your dreams come true.

1. You don’t know what you’re doing: Raising venture capital is a difficult, complex, time-consuming process best left to those with years of experience. You need to find investors who specialize in your industry and your stage of development. They are going to want to see tightly-written business plan with credible, detailed financial projections that tell a tale of 10x ROI along with a believable exit strategy. They want you and your management team to have a great depth and breadth of experience in your industry and be willing to hang in there through thick and thin until the company either folds or achieves a liquidity event.

2. Things will never be the same: As soon as the deal is struck - but before the money hits your bank account - you have just switched into overdrive. Expectations will skyrocket and failure will not be an option. What may have been a very profitable lifestyle business is now a fast-track growth business at its earliest stage of development with no guarantee of success.

3. You just lost control of your business: You will now report to a board of directors which will probably be dominated by your new partners, the VCs. Your vision and direction may well be altered along the way or thrown out altogether when and if the board feels a change needs to be made. How you react will be up to you.

4. Everything you do will be scrutinized and second-guessed: While your investors won’t be there working shoulder-to-shoulder with you, making critical decisions and ensuring that the trains run on time, they will be reviewing every action, expenditure and hire, asking questions that you may feel have no real bearing on the success factors underlying your business model.

5. They want the money back: Landing millions of dollars in venture capital means you have a big problem on your hands: how are you going to pay it back? While a huge infusion of capital does present a wonderful opportunity, it also represents an enormous responsibility. The VCs and their investors want the money back - in spades. They are looking for ten times their investment in just a few years. So along with a $10 million asset, you’ve just created a $100 million liability.

Obviously, many companies have done very well by working with venture capitalists, creating billions of dollars of wealth for everyone around the table. Unfortunately, many more have seen their dreams crash and burn by getting in bed with outside investors.

Here’s the bottom line: don’t even consider raising outside capital - from VCs or anyone else - until you have thoroughly thought the process through to all of its possible ends. And understand that by bringing in ambitious, high-maintenance investors, you may lose - or at least lose control of - a great business that took you years to build.