A capital investment can provide your business with a quick financial boost. If it is a lifeline, then the money will prevent your resources from getting overwhelmed. The decision to use a capital investment has its pros, but it also comes with a small set of cons.
The biggest downside of capital investment is losing a stake in your company. Losing some equity isn’t that big of a deal if you maintain control. But when your personal stake dips, you run the risk of never gaining back full control of the business.
Losing control of a company can happen during the first or second round of investing. It happens in the first round when the business asks for more money than it can possibly pay back. Second round loss of control means that the company is still struggling after the initial capital investment.
Making a foolproof plan for a capital investment is the best way to avoid reducing your founder ownership.
Finding The Right Investors
It makes no sense to take a financial risk when your company is already floundering. Mistakes are made during this period, but all mistakes aren’t equal. If capital investment wasn’t your first choice for raising funds, then there is a chance you’ve already spent critical time righting the ship. The time looking for other sources of money costs your company valuable resources. These are the same resources that would help slow the downfall of your financial situation.
Capital investment is a commitment, and does not fair well when it is a last-ditch option. Fundraising can take months, and there is no guarantee that a specific goal will be met. Time matters, especially when your company is already in critical condition.
Take capital investments seriously, or they will be a major contributor to your business falling apart.
Times Have Changed
COVID has changed the requirements for capital investments. Pre-pandemic funding was readily available for companies interested in capital investments. Now it is scarce, and much more of a numbers game. The National Venture Capital Association has been keeping track of the information for years.
With the higher difficulty for obtaining capital investments, businesses are now having to make a tough decision before submitting a proposal. This lack of indecision has mixed results in the industry for startups. Instead of capital investments being the top choice for funding, it is now considered one of many options.
Companies that don’t have a solid foundation will find that capital investments are an expensive answer to their financial problems. Preparing your business for growth is now a lot less flexible than it used to be.
Businesses are now lifting their COVID restrictions, but the changes of capital funding may stay in effect.
Keep Control of Your Company
No matter what state your company is in, majority control should always be maintained. Becoming a successful brand means enduring the lows of growth. By putting your company and workers first, the capital investment will always work in your favor.