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For Startups, It Pays to Partner With a High-Quality VC, Even If You Give Up Some Equity

1 45 1
25.08.2021

The number of venture capital (VC) funds has exploded in recent years, giving entrepreneurs more options than ever to finance their startups. There are now close to 2,000 VC firms in the U.S. alone, with over $54 billion invested in early-stage startups each year. Finding the right VC to partner with can be make or break for a young company, determining how much money it raises and the advice, networking and resources it gains access to. How can entrepreneurs identify the best VC for their company and avoid becoming one of the vast majority of startups that don’t make it?

When fundraising, entrepreneurs sometimes have their vision muddied by the desire to keep as much equity as possible, hoping to maintain greater control and the possibility of a bigger payoff down the line. However, my research as a professor at the University of Southern California’s Marshall School of Business shows that VC quality is much more important than equity share or other contract terms. In a recent study, my colleagues and I found that the highest-caliber VCs offer founders a smaller slice of a bigger pie, taking more equity but nearly doubling the value of their companies compared to lower-quality VCs.

Related: 5 Unconventional Ways to Attract VCs

It’s true that VC investors take a substantial stake........

© Entrepreneur


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