Investment capital can come in many forms, and from many different sources. It could simply be your friends, family, or even your personal investment in the venture. For the scope of today’s article, we will be dealing exclusively in the realm of venture capital firms.
The same could be said for a business loan. They can come from a number of different places, niche lenders, friends and family, banks, etc. However, for our purposes, we will be comparing venture capitalists to bank loans. We will be speaking in generalities to reach a broad audience. Your circumstances may vary.
The choice between venture capital and getting a business loan is really two decisions. The first decision deals with how much of your company you are willing to give up. The reason I say this is that you will have to give up partial ownership of your company to venture capitalists.
This could be only a few percentage points, or it could be more than half of your company. If it is more than half, your role will change from that of owner to that of manager. On the other hand, you won’t have to pay anyone back, and your business won’t have the burden of loan payments during the first few fragile years in business.
Getting a loan may seem more attractive to many new entrepreneurs—after all, you spent so long coming up with your idea. However, sometimes the better financial choice may be to bring in outside investors, instead. Ultimately, the decision is yours to make.