When faced with the frustrating constraint of limited capital, many entrepreneurs contemplate venture capital (VC) as a potential solution. Armed with a compelling vision, marketplace traction and a high revenue growth rate, these businesspeople believe that the only thing standing in their way is their lack of cash to scale the organization. And, certainly, venture capital, approached with the right mindset, can unlock the potential in bootstrapped, fast-growth businesses.
I say that from personal experience: As the co-founder and CEO of Hireology, a talent technology company launched in 2010, I’ve raised more than $26 million in venture capital from top-tier investors and experienced the incredible opportunities that having the right VC partners affords you.
However, I’ve also seen many peers’ purusit of VC funding lead to harmful, even destructive, results. Before you consider raising outside capital, here are five things most entrepreneurs don’t realize about the risks associated with raising venture capital:
1. Your business may not be ready for rapid scaling.
Your new VC partner will expect you to immediately deploy your newly raised capital. Most VC rounds give the company 18 to 24 months of runway. And you may think you understand your customer acquisition model — after all, you didn’t get to this point by not selling things to customers. But, when you double or triple the size of your sales and marketing operations in three to six months, you’ll find out quickly whether or not your model was ready for prime time.
The worst-case scenario occurs when you invest heavily in ramping up your customer…