Chapter 2. Venture Capital: The Pros, Cons, and Alternatives

Today, venture financing is glamorized by the media. It’s like a scorecard for founders and entrepreneurs to compare how they are doing relative to their peers.

Financing announcements on TechCrunch, movies like The Social Network, and HBO’s hit show Silicon Valley have led many founders to believe that venture capital is the natural next step for any budding startup. It’s true that venture capital can be a great way to finance growth, and that the right investors can add a stamp of legitimacy and provide valuable connections to further your business. But venture capital isn’t right for every founder or every company.

As mentioned in Chapter 1, less than 25% of all businesses actually receive venture capital, either through angel investments (24%) or venture capital firms (1%). The other 75% of businesses turn to other strategies and forms of capital to finance their growth.

It’s not just small companies that don’t raise venture capital. There are many large companies that either didn’t raise any venture capital at all, or were already fairly well established before fundraising.

When Dell raised its first venture capital financing, it already had $60 million in revenue. eBay had over $4.5 million in revenue before Benchmark Capital invested in the company. Oracle’s first product was funded by a government contract, and Cisco already had $5 million in revenue before Sequoia invested. These companies were able to ...

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