FORTUNE Small Business:

Should I seek venture capital?

FSB expert Patrick Thean weighs pros and cons of the VC route.

By Patrick Thean
President, Gazelles Systems, Ashburn, Va.

(FSB Online) -- Dear FSB: I am considering a few business concepts but don't know if I should try to finance them on my own or try to make it big by seeking the assistance of a venture capitalist. What are the pros and cons of working with VCs?

- Ashish Singh, Mumbai, India

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Dear Ashish: Starting a company on your own and working with VCs aren't mutually exclusive arrangements. VCs like to invest in ideas that can be easily proved and have business models that can scale quickly, beyond the personality and strength of the founder.

The main decision an entrepreneur has to make regarding a VC is the tradeoff between risk and reward. Working with a VC usually means the investor will expect you to push hard for fast growth. If your concepts convert to quick sales, you will have the opportunity to build a stronger company faster. However, if you do not achieve your plan, you may see your ownership get diluted. The VC will have to invest further to keep operations running, which means you will have to give up more equity.

If you do decide to seek venture capital, you may want to wait until you have one or two major customers. That will make your business plan more appealing. Running your company on sales is like operating a car with a tank full of gasoline. Relying on VC funds is like driving on fumes. Ultimately you will run out of fumes, and you had better find a steady source of fuel.  Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.