Turning down VC funding may be the best business decision you’ll ever make as an entrepreneur. Find out why
- You’ll likely lose control and battle to take your business in the direction you want.
- You’ll have to satisfy investors who may have a different view of where the company should be heading.
- Without a clear, detailed, and well-planned exit strategy, you will likely not get any funding from investors.
- Added pressure and expectations to hit milestones.
The online and mainstream media are awash with stories of startups getting funding worth millions of dollars.
For most startup founders, getting a bite of this investor fund pie is the hallmark of those days of sleepless nights and hustle.
But, a side of the story that’s not been told is that there are plenty of dark sides to taking VC monies which in the long term outweigh any benefits you hope to gain now.
Granted, having a stash of cash you can easily access can solve many problems for any business, especially when you’re just starting.
But the hard truth is that investor funding might not be a good idea for some budding entrepreneurs in the long term.
Several factors should be considered when deciding whether or not an investment in your startup could be the golden key to its success.
The first of these factors is this: is your goal to build a scalable or lifestyle business?
But first, what is a lifestyle business, and what is a scalable business?
The founders mostly operate a lifestyle business with two intentions:
- Provide a distinctive lifestyle, such as the ability to travel, work/life balance, etc.
- Sustain a dependable level of income
On the other hand, a scalable business is generally set up to maximize revenues and develop it to its highest potential.
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Why turning down investors’ monies might be the best business decision you’ll ever make
Here are a few reasons why turning down funding may be the best business decision you will ever make:
No More Working for Yourself
Remember you struck out on your own to start a business because you did not want to be stuck to the usual nine-to-five grind?
Yes, you bought into the “Be your own boss” dream; that’s why you have a startup on your hands.
But the truth is that as soon as you accept funds from investors, you will practically be working for them.
In most cases, investors take ownership of enormous percentages of businesses, and yours will not be an exception.
Due to their vast experience in the niche, most of these investors would want to run things in a particular way.
They may push you to carry out initiatives based on their timelines and will, of course, have ideas or concepts and demands that are different from yours.
You may end up jettisoning your vision for your company, and before you know it, you will virtually be back in the nine-to-five grind, albeit you will have a little breathing space.
So, instead of seeking VC funds, you may consider bootstrapping a little bit longer while you work to steadily grow your revenue.
Be determined to take the revenue from the sales of your services or products and put it back into your startup so that you can fund the next marketing initiative on your agenda.
This will help you be more strategic when spending your own money on your business.
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Lack of an Exit Strategy
Most investors always look for an exit strategy in any business they want to invest in.
And so, the ones you are looking up to for funding will be interested in learning your exit strategy.
Will it go public, sell the enterprise to another new owner, or be acquired by a more prominent organization?
If you do not want an exit strategy or don’t have one carefully planned out, finding an investor – in the first place – will be very tough. And this may force you even to forgo fundraising altogether.
The first thing that investors are always interested in is how to get their money back with some spare change on the side, and exit strategies are the perfect entrée to make money.
Building a lifestyle business backed or funded by investors will not give you the liberty to withdraw cash as often as you’d like to live on the income.
So, depending on the type of business you want to build and the demands of starting a new business, you may have to forgo investors.
But then, you must be sure that the benefits of doing so will significantly outweigh the drawbacks.
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Outside Funding Equals Added Expectations and Pressures
The pressures and expectations you will encounter due to external funding are better imagined than experienced.
You will be in a position where all your moves will be to try and impress the investors or meet their expectations, whether or not they align with the company’s goals.
All you will always have on your mind is how to give your investors the most lucrative and quickest return.
This is not the right place to be, and you may even burn yourself out due to extreme pressures and expectations. It is not worth it at all.
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VC Funding: Key Takeaway
As you can see, turning down funding for your business is not a bad idea at all. However, you must weigh the pros and cons before deciding.