Home TECHNOLOGY How To Finance A Technology Company Without Using Venture Capital

How To Finance A Technology Company Without Using Venture Capital

IT is one of those businesses that turn a profit almost immediately. The gross profit from all active jobs is more than enough to cover your overhead expenses. No matter if you’re a sales professional or a tech specialist you can gather a team and start looking for projects. Every individual has an equal chance for success. However, it’s important to bear in mind that the IT industry is extremely competitive and firms are aggressively competing for customer contracts. You must give your best if you want to succeed.

Raising venture capital is one of the best ways to keep your business up and running. Venture capital financing allows for company expansion that would be impossible via traditional bank loans or other methods. Besides financial support, your startup benefits from a valuable source of guidance and consultation from well-off investors. When a venture capitalist invests in a technology company, they usually do it in return for equity or the right to make decisions.

Venture capital financing offers intangible benefits, but there’s little evidence that they deliver economically significant value to sponsored firms. If you’re seeking to finance and grow your organization without venture capital, this article is for you. There are other paths to fundraising. If you’re curious to find out more, please continue reading.

Negative Points to Think About Before Taking the VC Direction

Tech firms are still seeking help from venture capitalists despite the fact that there are several drawbacks to doing so. That’s because they assume that raising venture capital is their only option. Nothing could be further from the truth. Surprisingly or not, only a small percentage of IT companies are funded by private investors. It’s not worth pursuing this financing route for a number of reasons, as highlighted below. Let’s take a look at the unexpected elements of seeking venture capital.

Forced Management

Did you really think that venture capital funding doesn’t come with strings attached? It does, just to be clear. Each proposal that you receive needs to be carefully analyzed with respect to the obligations that it implies. Although it seems that everything is alright, that money comes with a dose of control. More exactly, your VC partners will want to become involved in the company given that they inject so much cash in it. First, the investors will demand a stake in equity. Next, they will want to add management. Last but not least, the venture capitalists might want to replace some managers. It’s important to establish from the very beginning how things will be settled.

Founder Ownership is Reduced

If the VC firm’s take in your tech firm exceeds 50 percent, you risk losing management control. What happens is that the founders lose the majority ownership in their company and, to regain control and decision-making, they have to raise additional funds. If one or more shareholders decide to leave, someone needs to buy out their shares. With private equity investors, it’s possible that they’ll purchase the company entirely if that’s okay with you.

Funding is Scarce and Difficult to Obtain

This might come as a surprise, but there is scarce venture capital support. Even if investment in technology is on the rise, less money is available from top venture capitalist firms. The explanation lies in the fact that VCs have decided to only support startups that are set to make it big. They invest in good people and good ideas. What is more, funding is very difficult to obtain. You only have a few chances of raising ground with private equity investors because they receive thousands of pitches a year and don’t invest in more than 3 or 5 companies. This means that it’s a matter of luck.

What are the Non-VC ways of Financing your Tech Company?

Venture capital financing can turn out to be detrimental to your tech company’s health. The amount of money that your startup raises is inversely correlated with success. This translates into the fact that the less money you raise the more successful you’ll be. You’re better off identifying other sources of financing. For instance, you can try to negotiate quick payments from clients. Many are willing to pay sooner in exchange for some sort of discount, but this solution isn’t completely reliable. If you want to grow your business with no VC money, here are some interesting options to take into consideration:

Raise Capital Through a Debt Vehicle

Not many startups resort to raising capital through a debt vehicle because they don’t have good cash flow and, therefore, are unable to pay the interest. The rates tend to be high. Perhaps, but taking out a loan makes it possible for you to retain equity in your company and you’re guaranteed money for the whole period. Rather than using traditional forms of collateral, you should better use cryptocurrency. Not only will you lower the market risks resulting from price fluctuations but also access much-needed capital. It’s worth consulting a financial directory before making a final decision. It’s essential to do your research before the application process.

Try Crowdfunding

Crowdfunding is a way of raising money through the collective efforts of friends, family, customers, and individual investors. Indeed, the process involves a great deal of work, but it’s one of the very few options that ensure cash flow. Crowdfunding can be a great way to raise much-needed capital and get the word out about your IT company. Your business’ community and your ability to reach it are essential to the success of the campaign. Keep in mind that you’re obligated to use the money to create and deliver what you promised. Get support from people you already have a strong connection to as opposed to an anonymous crowd.

If you’ve got big plans for the future, you’ll certainly need additional capital for business growth. When opportunities come knocking at your door, you need cash flow to support a significant investment. So, make sure you’re not short on cash. Otherwise, your plans won’t have a big impact.

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