If you're considering seeking venture capital funding, you need to perform a cost-benefit analysis to determine whether or not a VC is right for your company. In addition, you need to incorporate your business and personal preferences into your analysis.
The costs and risks to seeking venture capital are fairly clear. As a founder, you will be giving up a portion of your company to the VC for capital and resources. However, if you find the right VC, this may only be an upfront cost as the capital accelerates the company's growth. Another cost to consider is the time you need to dedicate toward seeking the best VC for your company. Raising capital is not a quick and easy process. It takes many months, usually three at the minimum. Also, you'll have less time to focus on growing your company organically as you'll be busy meeting with potential investors and drafting presentations.
The other caveat to seeking a VC investor is being able to find the right one for your business. You'll want to work with a financial partner who shares the same vision as you. You will be giving away some control of the business, so you should be very cautious as to who will be helping you grow your business. You don't want just capital; you want a VC that has deep-rooted relationships with the key players in your industry. I personally also believe that former entrepreneurs are generally the best VCs to work with, as they've walked in your shoes before.
There are many benefits to raising venture capital. The obvious one is that you'll have more capital to fund the highest-growth areas of your business. You'll also be able to add more resources and employees to your business. A VC is also often a rubber-stamp for credibility. If you're seeking a strategic partner with a large company, one of the questions they will often ask is whether you have any investors backing your company. The best VCs also provide entrepreneurs with experience and relationships, which isn't available for many entrepreneurs working alone.
Then you'll need to consider your business and personal preferences. What exactly are your goals for the business? Do you want to try to build a company on your own? Or do you want to try to build the next large brand in your industry? You may be able to do it on your own, but it's typically easier when you have an outside financial partner on your side. On a personal level, are you going to be able mentally to handle reporting to a VC and conducting board of director meetings? Are you going to be okay if, in the future, the board decides that you are no longer the best person to lead the company? These are all questions you need to ask yourself in advance.
The last factor to consider is whether or not your company is a "fundable" business. If you don't have the ingredients that most VCs require when reviewing companies, then this whole exercise is a waste of your time. Sure, sometimes you need to speak to a few VCs to determine where your company stands in the market, but you'll find out quickly whether it is "fundable." Most VCs will want to invest in a company with a large market opportunity, an experienced management team and a clear way to monetize following the investment. If you're missing any of these key ingredients, then seeking venture capital might be a waste of your time.