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Do You Need Venture Capital For Your Startup?

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Venture Capital & Business Funding

Tech startups in NYC have had a windfall recently with most venture capital firms looking to invest. It is expected that the funding will lift innovative entrepreneurs and their early-stage companies into greater heights of sustainable innovation.

Unfortunately, the funding does come with strings attached and can be too costly for young, entrepreneurs. Here is what startups stand to lose once they open their doors to venture capitalists to fund research and production.

Click here to see some of the best angel investors and venture capitalists in NYC

Venture capital firms fund businesses in return for equity. In many cases, during seed rounds they can ask for 60 percent of the equity in the company or more. If an individual or company takes over 50 percent of the company, they now have control of the company and important decisions. The VCs usually add a member from their team to the company’s management board. The member is to ensure that the company runs successfully. However, in many cases, this creates internal problems within the management of the company.

Venture capitalists can often require being informed of every major decision that the founder makes for the company. They can override decisions or impose new ideas on the company in the name of safeguarding their investment. In essence, they tend to operate the firm.pexels-photo-70292-300x200 Do You Need Venture Capital For Your Startup?

Despite the fact that they promise to keep the company information confident, many VCs will refuse to sign a non-disclosure agreement as it comes with a number of legal ramifications. This puts some of the innovative ideas of the startup at risk as the representative for the VC firm can decide to pursue investing in the company or use the information for other investments.

VCs can decide to focus on profit and not on the long-term growth of the company. They may take too long to invest in a startup, and when they do, they may dictate profit maximization strategies that can hurt the business in the long run.

Despite promises to give so much to the business, VCs do not release all funding at once. They release the sum in stages with an eye on expansion. It may be hard to plan for this kind of funding. At some point, this multi-stage funding can ruin your business.

Startups are receiving major funding in New York, and VCs can be ideal business partners for the growth of your business. Many of the most successful startups over the last decade have been funded by venture capitalists and they usually have your best interest in mind. Just be careful and know there are downsides to receiving funding. If possible try to always control half of the equity in your company or more so that you can never be outvoted in the direction your business will go in.

 

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Jack Cohen

Jack Cohen has over 15 years of industry experience developing and implementing real estate strategies for clients in Manhattan and throughout the United States. Prior to founding Spaces Commercial Real Estate, Jack was a Managing Director at Colliers International for 3 years and a Director at Cushman & Wakefield for 9 years. Jack’s forward thinking has engineered some of Manhattan’s most unique and difficult deals including the repositioning and leasing of 636 11th Avenue, a 564,000 RSF warehouse to office conversion, which was awarded real estates highest honor- REBNY’s Henry Hart Rice Most Ingenious Deal of the Year Award. Jack is a graduate of Rutgers University School of Business where he majored in Economics and Business Management. He is a member of the Real Estate Board of New York, the executive committee of American Israel Public Affairs Committee (AIPAC), and the Board of Education of Keter Torah, his childrens’ school. Jack lives on the Jersey Shore with his wife and three children.