4 Common Venture Capital Myths

If you want to start strong, steer clear of these funding fantasies. (http://www.entrepreneur.com/article/204198)

 

The article that I found explains 4 common venture capital myths. And the reading that we are assigned to read this week is mainly discusses the process of having a venture capitalist, such as explaining the ideas to the VC, talking the financial details with VC, managing the agreement with derivatives. In their opinion VC’s are masters of procrastination. They keep all options open until the last possible moment, and then they will invest. So in this process because VC’s are more experienced than entrepreneurs, entrepreneurs should be really careful about what they are doing.

The first myth is: “By demonstrating the tremendous value of my idea, I will be able to demand a high valuation for my new company.” The author discussed that, management of the money and the company depends on the amount of investment. And generally venture capital firms insist on owning at least 20 percent of all early-stage portfolio companies, which is called Lead VC.

The second myth is: “I am going to retain control of my company.” The author highlights that, after a single round of financing, the founders no longer have “control”, not to mention the specific veto rights that the VCs will have over key matters, such as acquisitions, the next round of financing.

The third one is: “By taking less money now, I will avoid dilution.” To remain attractive for the quick flip in a sale of company, entrepreneurs sometimes choose to raise lower amounts of investment         in order to eliminate dilution. And the author says that, even though they choose to have lower amounts of funding, the difference between the two amounts will not be huge. And he points out that “At the end of the day, start-up businesses fail for one reason: because they run out of money.”

The last myth is: “I am going to be able to choose the right VC for my company.” As GO Company also encountered this situation, they were talking about every single company to be invested by. And they decided not to call everybody, if they couldn’t get any answers then they would try to reach the others. The author also mentions that, if an entrepreneurs don’t have any experience, their job is really hard to get a venture capitalist. Therefore, they will be less selective because they need funding to run the company.

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