Three Ways That Venture Capital Money Can Destroy Your Brand

If your company needs additional capital to scale quickly and you’re thinking about venture capital, think twice. Venture capital isn’t for everyone. If your business isn’t ready for it or you fail to surround yourself with the right people, you can destroy your brand.

It’s important to realize that your investors should believe in you, align with your values, and support you through your journey. Be cautious in thinking that venture capital (VC) investment is the answer to all of your problems. You’ve worked hard and you need financing to grow, but you don’t want to ruin your business and your brand because you’re backed by the wrong people.

Always remember that your brand is a true representation of who you are as a business. At FineView Marketing we design your brand to communicate the who, what, where, when, and why your company exists. More importantly than that, your brand gives your customers a clear impression of who you are and the values that make your company unique. Make sure that there isn’t a disconnect between what you want and what your investors want.

How Venture Capital Money Can Destroy Your Brand

The Investor Should Understand and Be Aligned With Your Industry

Choosing the right investors is a critical decision. Don’t assume that the VC has the expertise, industry insight, and market knowledge that can move your business forward. Harvard Business School senior lecturer Shikhar Ghosh’s research indicates that as many as 75% of venture-backed companies fail. His findings are based on research of more than 2,000 companies that raised at least $1 million.

Your investors should be trusted partners. Don’t be afraid to ask them specific questions about whether or not they have the right experience for your industry. Your expectation should be that they will add value to your company by providing strategic insight and guidance. Unfortunately, in most cases, they know less about your business than you. Moreover, their lack of daily operational experience in your industry can lead to a knowledge gap between you and them resulting in frequent conflicts. Most investors prefer to emphasize the financial aspects of a business as opposed to the operational capabilities. In other words, financial details are important but they do not contain all the information that is needed to understand and track venture performance in today’s evolving market.

The Investor Should Have a History of Being Supportive

Money is great, but if your investors don’t share your long-term goals it can create a high-pressure situation that minimizes your company’s likelihood of success. VCs frequently aim for returns of five to ten times their original investment and can be quick to jump ship if they feel there is little chance of seeing this return. In this case, your company’s reputation will take a hit if you try to raise more financing, and you could very well lose your business.

As mentioned above, you should have a goal of targeting VCs with a strong history of mentorship and support. Cash should not be the only thing that they bring to the table. Your investors should not only be banking on your success but willing to be actively involved in guiding you through the rough patches to a mutually desirable outcome.

Your Company Should Be Ready for Outside Investment

Are you ready for venture capital? You need to have an operational structure in place so that you’re building on what you’ve already created. According to George Roberts, your business should only raise venture capital if it has reached the following milestones:

• You’ve built a product or service and it’s in production
• You’ve identified a target market segment
• You understand your buyer personas
• You’ve made repeated sales to multiple customers in your target market
• You’re growing at a rate that’s in line with or ahead of similar-sized companies in your market.

If your business hasn’t hit the suggested milestones or you can’t find a partner who truly aligns with your vision, it may be time to pull in the reins and realistically consider your needs. You might be surprised to find that there are options like SBA loans or angel investors that would be a better fit for your current needs.

Summary

Your brand is too valuable to destroy by giving too much control to the wrong investors. Initially, it’s critical to understand whether your company is actually ready for outside funding. If after thoughtful consideration you feel that VC is the right thing for you and your company, take the time to find people who are trustworthy, have insight into your industry and are willing to mentor you to move your company forward.