By Carl Grant, Senior Vice President of Business Development at Cooley LLP
There comes a time in the life of a small or emerging growth company when they need to raise capital. There are many different ways to do so, but for companies looking to follow in the footsteps of Microsoft, Intel and Google, securing venture capital funding is the way to go.
The venture capital process involves an investor providing funds to startup firms and small businesses with perceived, long-term growth potential. This can be a high risk endeavor on both sides, and is not always best for all companies.
In a recent article in the Wall Street Journal, reporter Colleen DeBaise takes a look at the current state of venture capital, and why this particular model for corporate growth isn’t right for all companies.
With the economic downturn, VC funding is in short supply. In fact, in 2008, VC investment fell for the first time in years to $28.3 billion in 3,808 deals. Investors that witnessed or experienced being burned with start-ups and other small companies during the dot-com bubble burst are also very hesitant to take chances and are analyzing each investment opportunity carefully.
What are they looking for? The ability for a company to demonstrate that its business model is feasible and profitable in the long run and have bright outlooks moving forward.
Even if your company meets these criteria, there are other things to consider when contemplating VC funding. The process of accepting money from an investor is not a short-term fix, but rather a long-term commitment. Many investors will look to immediately install hand-selected members of the leadership team to help guide their investment. This means that companies looking to keep total control may want to look towards other sources of funding to facilitate their corporate growth.
However, for companies looking to expand rapidly and that don’t mind losing some of their autonomy, VC may just be the best way to go. If you feel that your company is primed to begin looking for venture capital, you may want to check out my recent post, offering tips for enterprises seeking VC funds.
Disclaimer: The postings on this site are my own and do not represent Cooley LLP’s positions, strategies or opinions.