When Venture Capital Funding is Not Right For Your Startup

There is a tech startup I know that is unfortunately shutting down after a couple of years in operation.  This startup was successful.  During its time, it managed to get a lot of recurring users and it even spun off another product that was inline and complemented its original product offering. Yet, it is shutting down, not because it was successful (it was), but that it was not successful enough.

This startup received seed funding from a venture capital fund that got it through its first couple of years of existence, which resulted in good growth over that time period.  However, when this startup needed some additional investment from the venture capital fund, it was unable to get it.  The product that they had built was not going to be a product that they could sell for millions down the road and therefore they decided to cut their losses and not give an add-on investment to this startup.  The lack of additional funding doomed the startup.   While this may be one of those things that is accepted as a reality for most startups, I believe that sometimes taking venture capital money may not be right for a startup.

There is a case to be made for a slow growth startup.  Getting venture capital funding will accelerate the growth of the startup for better or worse.  If growing slow and having a liquidity event in the not too distant future is not something that you want for your startup, then getting investments from venture capital funds is not a good decision for your startup.

There is also the case for building a startup to have a long independent life.  Maybe your startup won’t make millions, but it will still be successful and profitable.  However, by taking VC funding, a startup will live and die by a shorter runway for success and unfortunately, in the example provided earlier, the startup couldn’t make their startup successful fast enough for VC standards and thus ultimately failed.

While many startups have successfully grown and succeed due to venture capital investments, not all startups need venture capital funding to find success.  Maybe your startup needs more time to mature than what a venture capital fund will give you or you want to keep the determination of your startup’s future in your own hands.  Either way, before taking venture capital funds, it is important to understand whether venture capital funding is right for your startup or not.