Startup executives need to be careful when deciding whether to seek funding from venture capital firms. Many of these organizations will only support companies that they expect to grow significantly – experts estimate a company must make at least $25 million in the first five years – in order to even be considered for funding.
From there, the startup must prove its long-term viability, as investors are not interested in supporting projects that fail within a few years. Business leaders who work with venture capital firms should also keep in mind that venture capitalists have a entire portfolio of investments and may not necessarily place particular startups at the top of their list of priorities.
"In some ways, a venture capitalist is like a general who sends soldiers to attack a beach while hanging back himself," Inc.com editor Eric Schurenberg wrote this week. "He knows that some soldiers will get shot to enable a few to get through. In this system, entrepreneurs are capitalism's cannon fodder. That's not a judgment. It's just the way it works."
Executives need to keep this fact in mind at all times, and not expect a venture capitalist to bail them out of problem areas or continue to pour funding into a floundering organization. To prevent a fractured relationship with a venture capital firm from decimating a startup, executives should try to find alternative funding sources for their companies.
By identifying multiple investors, a startup could be better shielded if they fail to receive venture capital funding or if one of these investors withdraws support for the business. Through a global executive search, managed by an executive search firm, startups may hire a creative CEO with access to or knowledge of multiple investment streams.