RESOURCES

Raising Fund from Investors: Pros and Cons

A startup without proper funding is bound to stumble under the weight of its own debts. To start something productive, startups require adequate funding. To achieve a pre-defined set of targets and objectives, startups are dependent on investor funding. In the fitness of things, a financial plan becomes all the more imperative and compulsive. According to the statistics provided by Reuters, venture capital firms invested around $900 million in the first half of 2013. No doubt, Venture capitalists and angel investors are the best sources of financial backing. But their decisions seem to have worked on the rebound in quite a few scenarios.

Business concept. Isolated on white
Business concept. Isolated on white

While the investment by venture capitalists and angel investors can make or mar your business, here is a balanced perspective of the pros and cons of raising fund from investors:

Pros:

  • Angel investors always nod in the affirmative to provide funding for purchasing office equipment.
  • To ensure survival of his employees, employer requires cash. So, venture capitalists say provide funding.
  • There are a few unexpected contingencies. The occurrence of hurricanes, fire accidents, earthquakes etc. may shatter not only the office equipment and infrastructure but also the dreams of founders and cofounders. Although insurance covers most of the catastrophic events, premium has to be paid. In the light of such circumstances, a line of credit is the need of the hour.
  • If your startup outclasses competitors and outshines all the existing challengers,  business expansion seems to the most feasible idea. So, who is going to provide the necessary funding? You have venture capitalists and angel brokers to do the needful.
  • What distinguishes angel investors from corporate banks is their ability to take risk. Despite the presence of enormous risk, angel investors never transform themselves into naysayers.

angel-2

 Well, do not get carried away with the pros. Look before you leap. Here are a few cons:

  • Angel investors may interfere in company decisions. As a consequence, it may do away with the autonomy of founders and co-founders in a profound sense.
  • Angel investors tend to have very high expectations. More often than not, they expect 10 times their investments. So, ROI may throw the founders of the startup into a dither.
  • When it comes to staking a claim in your startup, angel investors are guileful enough in bringing the concept of ‘equity.’ The percentage of ownership varies and depends on the investment of the angel investor. As a consequence, the notion of ‘profits’ becomes a farfetched fantasy.
  • Angel investors may withdraw themselves suddenly if they do not find your product’s value proposition to be compelling and convincing enough.
  • If your product doesn’t gain enough market traction, the pressure from angel investors may become your nightmare.
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