For any upcoming startup to grow, venture capital funding is very important. Although analysts feel there are many big companies that do not need seed funding to grow and have established massively without any venture capital, many like Dell, Oracle, e-Bay etc were able to make it big without any external fundraising. But it is also a fact that involving venture capital in business can have a sizeable impact on the course of a company and hence it is advised to properly weigh in the pros and the cons while deciding on what kind of seed funding would be right for a project. For seed funding India is one of the best destinations as many startups here have mostly survived the global economic onslaughts.
The pros of indulging a startup in seed funding are vast. Let us take a look at some of the positives of venture capitals.
Seed funding by investors allocates a good pace of growth for the startups. It also helps in expanding the reach of the business with the correct marketing and advertisement and competing with peers in terms of quality.
Helps set a system in place
The seed investors are always there to guide the businesses in every way, by giving the required advice, credibility, supervision, experience and links in every step. This not only helps strengthen the startup but also creates a long term relationship between the two parties.
Sets reliability factor
If you have a well-respected seed fund investor who raises venture capital in your business, your market value automatically increases as it is seen as way of building reliability in the market. It helps in attraction attention from a lot of areas, including potential customers.
An association with a seed fund investor is seen in the market as a significant milestone in business and hence people talk about it. This gives the correct exposure to the startup and helps getting access to future partnerships and contracts with industry leaders as well.
Helps set standards
One of the major positives of seed funding is that it helps determine the market valuation of a startup and that gives a major boost to the business. This not only helps set big standards for high development and growth but also increases value in the market. A benchmark setting helps them in generating more if there is a liquidity event like acquisition.
Helps in research and development funding
When the startups are new, they need a lot of research and development (R&D) funding to launch a product and sustain it. Hence, a significant amount of venture capital helps in revenue generation. Despite being of high risk value, seed funding companies in India are very popular for R&D and many venture capitalists are ready to risk it since the returns, if successful, are great.
Like it was mentioned earlier, venture capital is not for every startup. If right plan and policies are not followed, there are also dangers like dilution of owner’s equity involved. Also, there are many negatives with the seed funding involved. Let’s take a look at few.
Loss of control and equity
By taking in seed funding it is understood that the investor automatically gets some level of control over the workings of the business. The control could mean adding the investors in the company’s board, giving them a right to decide on future acquisition and funding offers and even settling on final marketing strategies.
Since it takes some time to raise funds for a startup business, it is quite possible that most of the company’s time and productivity is spent on ways and means to acquire the fundraising rather than working on the product building.
Causes a false sense of achievement
Getting a good venture capital funding is considered to be a big business success and many instill a false sense of accomplishment since the startup starts getting good media. But the reality is that just raising funding does not make a business successful. This false sense of success may lead to taking bad decisions, overspending and in the end not hitting the target. Apart from these issues, it is very likely that seed funding for startups in India can change a potential exit policy and prospects of a business. Hence, the pre-financing strategies might take a big blow. And so for the future of a startup to be bright and successful, an entrepreneur needs to weigh in what works best.