Ayush Patria, Sangam University (Bhilwara)

The economic world’s current emerging fad is startups. It’s no secret that a slew of startups have seized the economy by storm. The startup cultures in numerous economies in the west and east have been growing, with several generating huge profits. With millions of new startups springing up every year, the fundraising process is becoming increasingly important, and it has sparked a fierce controversy. The ensuing controversy stems from the reality that entrepreneurs rarely know who will eventually control their businesses. In today’s market, a startup can be supported in a variety of methods. A startup that is well-funded by venture investors usually works with the same set of people. This frequently results in a speedier exit for the investors, as the firm is sold to a larger corporation. Startups that are explicitly supported by a venture capital, on the other hand, are expected to exit perhaps through a splashy IPO.

It is common knowledge that money are necessary to support the young firm or to increase productivity. As a result, a capital infusion from any source may go a long way toward extending the life of a corporation or releasing a key new product onto the market. Various studies have discovered, however, that most entrepreneurs do not give much attention to what other finance sources have to offer. As a result, they effectively overlook the need of evaluating and examining the connections of investors who may eventually find themselves abandoning their operations to a much bigger profit-driven acquirer. As a result, strategic knowledge of the specifics of what is at risk with both outcomes is critical. The major reason for founders’ reluctance to learn about the alternatives is that many of them are only concerned with the amount of cash available and whether or not the venture capital firm is well-known. As a result, judgments are made based on popularity and financing, which many experts believe is a wasteful strategy. According to the survey, the major driver of investment and negotiation of like-mindedness in business for the 16% of startups that have been purchased is to secure predictable profits, not what such funding has to give both sides.

Because they effectively deliver a venture to a well-resourced owner, such business relationships have been dubbed “focused successes.” It should be highlighted that using this technique generally has negative consequences in the form of pressure on the founders to conform to the intentions of a unified investment group. In many situations, it has been observed that the founders must essentially relinquish control of the startup’s vision. This might be due to investor pressure, which causes founders to stand out completely once a larger firm takes control. When firms engage in such strange and unjustifiable activity, it is common for them to fail.

On the other side, one may argue that venture capitalists who do not collaborate strategically or effectively tend to keep onto businesses for longer. As a result, the founders must choose between encroachment of authority in the firm and investors who may outlast their usefulness in the enterprise. According to the statistics, an investor that holds on to a business for a longer period of time does so for an average of four and a half years. Though some may claim that becoming a publicly traded firm might bring greater attention, earnings, and successfully maintain the original management team, the substantial risk of failure for projects supported by such syndicates is a reality that cannot be overlooked.

As a result, although most entrepreneurs are concerned with the term sheet or the amount of equity they can keep from such investments, the structure of the options, which is a form of hidden variable, has far-reaching ramifications.

Though the level of collaboration between two parties sends conflicting messages, there are times when such investments may be far more helpful than the aforementioned consequences. The pool of investors may be able to assist the company in pooling resources and establishing vital industry contacts. This may appear to be a good possibility that many businesses or startups would like to investigate. On the other side, we’re seeing a more diversified investor group emerge, which may be ready to offer founders more decision-making latitude.

Whatever the situation may be, founders must be aware of and evaluate the benefits and drawbacks of such financial partnerships, as well as who they partner with. Such decisions are mostly driven by their solemn outlook on their businesses and the goals they have for them, which should be made clear before committing to one of the many prominent VC funds. Though a sudden monetary infusion may appear appealing, the structure of relationships ultimately important, which is most likely disregarded.