How External Capital Can Help

How External Capital Can Help

Date: 02-Jul-2009

Taking the external investment has been proved to be a superior decision, and, to be honest, even in today’s market, I’d still consider raising money. Outside c[poll id=”12″]apital makes one a better entrepreneur, makes one focus own company more seriously on the things he needs to do and make more accountable and metrics-driven. Some companies feel that pressure internally can build those cognitive process without external help. But major companies need that external pressure to show that remarkable output.

I’ll try to detail some of the big ways in which outside investment can help:

Metrics Requirements – Any external investor will command reporting of specific data points about the business from financial, HR, marketing and development perspectives. You’re probably doing this already inside your business, but experienced outside perspectives extract the list into the critical pieces, determine important missing criteria and work with you to help create the raw numbers into actionable data.

Accountability – A lot of CEOs and company leaders select that job because it means they’re in charge. And while that’s certainly an enjoyable perk, bringing in outside investors makes you accountable again – not in the same way a typical boss does, but the obligation and pressure to perform. In many small companies, very few people beyond the CEO and perhaps one or two others are fully aware of the company’s performance or lack thereof – and when things go south (or simply don’t go as well as predicted), no one’s there holding your feet to the fire. If outside pressure can help you excel, then funding renders a great benefit.

Board Meetings – Rarely in small companies does leadership take a regular hard look at their priorities, plan of action and direction. Board meetings provide that gut-level check on every aspect of the business, and let you step back to see the forest for the trees. They’re not necessarily fun, but they will make you a better entrepreneur (and if they don’t, it means you’ve likely chosen the wrong board members).

Thinking Long Term – Running a business is unbelievably hard, and startups, doubly so. With so much time and energy dedicated to turning the flywheel, it’s easy to miss a chance or ignore a fundamental problem that’s outside the scope of the day-to-day. Professional investment means you’ve got a partner watching out for just that issue.

Adding Experience to the Team – Every new person we add, that’s the biggest team I’ve ever led. Every dollar of revenue that comes in is the most money I’ve ever managed. With outside investors, they’ve seen and been through much bigger and can help guide you along the path – whether it’s filled with potholes or cluttered with opportunities that just require to be scooped up.

Networking Opportunties – VCs know a lot of very significant people. From strategic operators at big companies to C-level executives at startups to government, charity and press, you’ll rarely find a more connected group. This shouldn’t be surprising, as networking is one of the biggest value-adds VCs advertise. The problem is that for most entrepreneurs, the need for these networks is few and far between, so it seems less valued than it really is – once your company is in a status to either do big enterprise partnerships or be acquired, those connections can “make or break” the firm.

Oh Yeah, the Money – Did you know VCs also provide capital? Yep, it’s true – and having dollars to spend when you’re a creative entrepreneur with a great plan is pretty awesome.

There are probably a dozen more ways that venture capital investment can help, and I’m certain that many of them will be unmeasurable and possibly even invisible. All of this isn’t to say that VC doesn’t have it’s downsides – there are a few, and it pays to be aware of them
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