by Casey Ark
I run a web design firm that deals with startups – so I get the awesome opportunity to talk to plenty of young entrepreneurs every day. While startup owners come in all shapes and sizes – they all share one thing in common: they’re all desperate for venture capital. But strangely, if you ask most of these entrepreneurs why they want they want VC so badly, they often don’t have a good answer.
These days, it seems as though everyone wants VC, whether they actually need it or not (over $27 billion was invested in VC in 2012). While getting accepted by a big-time investor can provide a much-needed sense of affirmation, it’s absolutely not a requirement for many startups (you’ve undoubtedly heard of the numerous bootstrapped startups which are experiencing success as of late).
If you’re considering venture capital, make sure you’re doing it for the right reasons. Here are 4 quick questions to ask yourself before taking the VC plunge:
1. Do We Actually Need Any Money?
That might sound like a no-brainer, but you’d be shocked at how many startups blindly accept capital without even considering what they’ll spend it on.
If you have a real, immediate business purpose that you need money for (i.e. you’re developing a product that requires huge initial production investment), seeking out venture capital may be a good fit. However, if you’re looking for affirmation and guidance from an industry pro – tread carefully. Accepting money means yielding control of the company, which can be a crucial mistake for early-stage startups. If your vision doesn’t mingle nicely with your investors, you may find yourself at an impasse.
If you’re a tech or eCommerce startup founder, the main reason to accept investment is simple: you probably need an expensive website to start marketing your product, and you think you can’t afford it. A solid website can be expensive, but make sure that what you need isn’t out of your personal budget range (here’s a web design cost calculator to give you an idea on what you should be paying).
2. Does Our Investor Know More About The Industry Than We Do?
Just because an investor has money doesn’t mean they have all of the answers you’ll need to turn your fledgling business into a profitable enterprise. If your potential investor doesn’t have industry knowledge, and you don’t absolutely need the money, consider holding off.
3. Do We Have A Plan To Be Profitable?
If so, how long will it take? There are some VCs who do it for the fun, but many do so for the money. Remember: VCs are – first and foremost – investors, and they’re generally interested in making a serious return on their investments.
RELATED: Is A Business Plan A Waste Of Time?
4. Do We Know And Like Our Potential Investors?
You’re going to be working with (and often, answering to) these people over the duration of your VC contract – do you like them? Do they share your vision for the company? Make sure that your personality and business views are aligned before taking the plunge.
Casey Ark is the owner of Plato Web Design, a startup web design agency that specializes in creating unique, sales-driven websites for businesses large and small. When he’s not hunched over his desk programming, he’s a columnist for The Patriot News and a freelance writer whose work has been featured at Speckyboy, Under30CEO, and Thought Catalog.
More from Casey: 5 Qualities Of Highly Successful Entrepreneurs
Giuliano Maiolini | Courtesy of Casey Ark