In taking venture funding, the startup is also taking the VC’s business model.

The VC must provide the Limited Partners a venture-level return.

It’s a high-risk, high-reward endeavor.

A venture-level return requires the following:

Continually raising funding.

Startups will need to raise funding all the way to the exit to achieve the milestones.

This can be challenging as venture sectors move in and out of favor over time.

Dilution.

The founders will find they are continually diluting their positions on each round of funding.

As the valuation grows, the dilution becomes less, but hopefully the pie is getting bigger to offset it.

Selling before the full potential.

The VC must return funds to the LPs, and needs exits to do so.

Most funds are on a ten-year cycle.  

At some point, the LP will require an exit even if the business is not at its full potential.

VC  funding brings with it venture risk and the costs associated with a high-growth company.

Consider these points before taking VC funding.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.