Founding or working at a startup are some of the most exciting life choices you can make. This unique career path allows you to work on exciting new projects while giving you a moonshot chance to become a millionaire. Regardless of your role at a startup, understanding the symbiotic relationship between startups and venture capital (VC) firms is critical for success.
Venture capital firms help startups scale by providing critical funding and expertise. However, it can be exceedingly difficult for startup employees to get a foot in the door with a VC firm. The online Master of Business Administration (MBA) with a concentration in Entrepreneurship program from William Paterson University (WP) expedites this process by signaling your business acumen to potential investors and making your startup seem poised for success.
What Is Venture Capital?
Venture capital (VC) is a form of private equity financing for startup companies with high growth potential that might not have access to other forms of funding. Venture capitalists (VCs) help young companies grow by providing capital, strategic expertise or both. There are four different traditional VC funding rounds:
- Pre-seed: The earliest stage of funding, when the startup’s founders are trying to turn an idea into a business.
- Seed: This stage is when the startup is ready to launch its first product or service but still requires financial assistance from VCs to fund its operations.
- Early-stage: This stage is when a business has developed a product and is generating sales but needs additional capital to ramp up production and expand. Startups refer to early-stage funding rounds as Series A, B, C, etc.
- Late-stage: The final stage of startup funding is when fast-growing companies are preparing for major liquidity events like initial public offerings (IPOs) or acquisitions.
VC funding can make or break a startup’s success. However, starting this conversation is incredibly difficult. The process of pitching VC typically requires securing an initial meeting, proving your company’s value and growth potential, and, if a VC firm is interested in investing, negotiating things like valuation, equity stake, board seats and liquidation preferences.
Benefits and Challenges of Venture Capital Funding
Venture capitalists provide capital in exchange for an ownership stake in the company and, as part-owners, will want a say in the company’s direction. VC funding comes with several benefits, including the following:
- Funding without repayments: VC funding allows the startup’s founders to obtain capital without worrying about a strict repayment schedule.
- Mentorship: In addition to capital, VCs provide strategic advice and mentorship that can often be invaluable.
- No assets or collateral: Many VCs are willing to extend financing based on nothing more than the founder’s vision or growth projections.
However, working with VC firms can present some downsides. The following are potential challenges of VC funding:
- Giving up equity: VCs often require between 20% and 50% of the company in exchange for capital.
- Shared control: VCs may have strong ideas on how the company should operate, which can sometimes contradict the founders’ vision.
Sourcing VC funding is much more nuanced than taking out a loan, and it can be difficult to determine if this is the right strategy for your startup. Aspiring business owners must decide if their startup will benefit from VC funding.
It’s usually best to partner only with VCs who fit the startup’s mission, culture and goals. According to Entrepreneur, this means sourcing VCs with skills complementary to the founders. If you have an engineering-heavy founding team, consider finding a VC with extensive marketing or finance experience. Once you’ve found the right partners, align on goals and vision before signing any paperwork.
WP’s Online MBA in Entrepreneurship: Equip Yourself to Start a Business
At a startup, every decision means more. One of the best ways for founders to mitigate the number of wrong decisions they might make is by obtaining an MBA prior to starting their own businesses.
MBAs teach founders core business fundamentals, like management, finance and marketing and provide them with the experience necessary to succeed at a startup. MBA programs specializing in entrepreneurship, like WP’s online MBA in Entrepreneurship, go one step further by providing an in-depth study of how founders can finance new business ventures, particularly by attracting VCs.
Learn more about William Paterson University’s online Master of Business Administration with a concentration in Entrepreneurship program.
