Continuing with the theme of The Slow Startup Movement from yesterday, one of the points to go deeper on is the different ways raising venture capital changes a business. Raising venture capital isn’t inherently good or bad — it has its pros and cons, just like anything. Here are five ways the business is changed after raising venture capital:
- C Corp Conversion – Most startups are LLCs (or should be) and as part of raising institutional capital have to convert to a C Corp (essentially can never be converted back). A C Corp has more complexity, double taxation on profits, and more annual paperwork but doesn’t pass through profits or losses (required by institutional investors for a variety of reasons).
- Quarterly Board Meetings – Most entrepreneurs don’t have a formal board or board meetings until after raising institutional capital. Board meetings, and the process of preparing for board meetings, are useful exercises for entrepreneurs when the business is scaling.
- Constantly Raising Money – Once the first round is done, the entrepreneur has entered the fundraising race track and can’t get off until the race is won or the keys have been handed over to a hired CEO. The entrepreneur is expected to raise money every 18-24 months (if not sooner).
- Focus on Growth Above All Else – Growth, growth, growth. Other aspects of the business are still important but every strategic conversation includes how to grow faster.
- Exit Timeline – The clock is ticking. Investors need to see a return in 3-5 years (and absolutely no later than 7-10 years). An exit isn’t required tomorrow but it’s somewhere in the mid-range future.
Raising venture capital changes a startup by heightening the focus and sense of urgency to create value. These are five basic ways the business is changed.
What else? What are some more ways raising venture capital changes a business?
David Cummings on Startups 