Venture Capitalists are seen as the bigwigs of any industry. With all the funding and investments rushing into start-ups, it’s no surprise that every new business aspires and dreams of being singled out by a VC. But does the start-up community truly understand the role of VCs or have we succumbed to a number of myths that prevent us from getting the best from them? The below myths about VCs will allow you to change your perspective and see Venture Capitalists in a new light:
Myth 1: VCs are the go-to funding source for all new businesses and start-ups.
VCs are not the be-all and end-all of start-up funding. In fact, most start-ups source their initial funds from a number of different sources like business loans, money lenders, angel investors, and even through crowdfunding initiatives. Even friends and family pitch in on several occasions. VCs invest in start-ups with a viable business idea after careful analysis of their professionally presented pitches.
The financial health of a VC is rarely affected by the success or failure of an investee.
Myth 2: The success or failure of an investee will affect the financial health of a VC.
The financial health of a VC is rarely affected by the success or failure of an investee. If anything, they make profits if the investee scales up. In the event of loss, the VC’s bet on a start-up is proven false. Most often VCs do not put their own money into a start-up. They raise capital for funds and the money from their own pocket accounts for less than 1% of the investment.
Myth 3: VCs are putting their own money and betting on a start-up.
While it’s true that Venture Capitalists take a certain degree of risk while investing in a start-up, their decision making is often backed by in-depth analysis into the business model of a start-up. They also have deep knowledge on the industry and market. So, they don’t place wild bets and rarely put their own money into funding a start-up.
Myth 4: A start-up is completely dependent on the VC.
While it’s true that start-ups receive funds from a VC, they are not completely reliant and need to fall back on their own business acumen to ensure success. Identifying and tapping into the right market opportunities, and informed decision making determine business success which VCs have little to do with.
Myth 5: VC investment guarantees the success of a start-up.
No, it doesn’t. VC investment is merely a support for a start-up and doesn’t guarantee the success or failure of a start-up. It’s more important to focus on making the investment worthwhile and determining how and when it will pay off instead of being laid back just because you have a VC on board.
Myth 6: Getting funding from big VCs is like hitting the jackpot.
Since more start-ups are receiving funding from big VCs, it’s easy to assume that getting a huge amount of investment from big VCs is like hitting the jackpot for your start-up. Oftentimes, these fundings come with a number of conditions and restrictions. Your decision making is often restricted with huge VCs on board, and oftentimes, other investors tend to backout or refuse due to the looming presence of a big VC.
What’s in it for me?
Investor behaviour has been very active and rampant in recent times. This trend is predicted to continue. VCs will continue to pump money into start-ups with added vigour. If you are ready to take your pitch to a VC, do thorough research on their experience while working on innovations in your own start-up. But most importantly, forget everything you think you know or have perceived about VCs because chances are that we believe a number of myths without realising.