Not every company is a candidate for venture capital. Outside equity, whether from family, friends, so called “angels,” or institutional investors like venture capitalists, always has strings attached. If your company is a lifestyle business or one in which the main goal is to generate personal income, or if it is a company that you would like to pass along to family members, then outside equity probably isn’t your best choice.
On the other hand, if your business is one that you want to quickly grow and at some point sell, then looking into the pros and cons of outside equity might make real sense.
Providers of most any kind of outside equity want to get repaid over a reasonable period of time and at a very good rate of return. In exchange for receiving equity capital, you are selling a piece of your company to the provider of that equity, so you now have a new business partner. Make sure you know who that partner is, and what their goals are for your company.
For a growing business, the advantages of this kind of capital are numerous. The most important is that equity significantly improves a company’s balance sheet. This means that the company will have more growth resources for things like hiring marketing or sales staff, developing new products or purchasing capital equipment.
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