# 4 Should You Raise Venture Capital? – 3 Questions You Need to Ask Yourself First
According to a recent article in The Wall Street Journal, the failure rate forventure-funded companies is 95% (The Venture Capital Secret: 3 Out of 4 Start-Ups Fail, WSJ September 19, 2012).
1. WHAT DO YOU WANT DO BE WHEN YOU GROW UP?
The most important question is what is your “end game”. If your goal is to builda cool, profitable company that can pay you and your investors millions individends and let you do what you want to do in life, you can do that withoutventure capital (maybe not without investors but without venture investors). Thisgoal is incompatible with the venture model.
On the other hand, if you want to build a billion dollar company, although theodds against you are greater, the odds of doing it WITH venture capital are a lotbetter than doing it without.
2. WHAT IS YOUR RISK TOLERANCE?
The “lean” approach of methodically build a company, proving your businessmodel step by step, maintaining a low burn rate until you get it right, and onlyscaling things that work lowers your risk substantially; you will be a small teamfor a longer time, no “hired gun” executives, low burn rate, just the basics, nofrills.
You will have a sense of urgency about getting to cash flow positive, and you willonly be able to increase your burn rate as cash flow allows.
You will be forced to prove your business model sooner rather than later,because you can’t rely on venture capital to pay your bills.
The bigger risk with venture capital is that it may pay your salary for three, four orfive years only AFTER which you find out you couldn’t get to profitability.
Also keep in mind, once a lot of capital has gone into your company, that is a lotof people who need to get paid back before you or your team see a nickel. It’scalled Liquidation Preference.
3. WHAT IS THE TIME WINDOW?
Sometimes there really is an opportunity where you need to “use it or lose it”. Ifyou have a head start, but the time window is closing, you may need to executesuper fast. language translator Venture capital makes it possible to do that.
BUT: the vast majority of startup businesses are not really like that. Manycompanies who went for the so-called “First Mover” advantage ended up as “FirstLosers” instead.
In most cases the real competition you face is non-adoption by customers – notother startups.
Check out this blog post by Steve Blank on “first movers” before you decide youneed venture capital to become one.
So when it comes to venture capital, be careful what you wish for. It is right forsome of the people some of the time, mainly when you have a business modelthat works and is ready to scale.
By Jeff Snider, US MAC Mentor