Corporate Funding Vs. Venture Capital and Crowdfunding

Imagine your rich family has the cash to finance an early round of your tech-music startup. Should you accept an equity stake or just take the money as a loan?

Before committing to an answer, please reflect on the NVCA statement below, taken from its Annual Yearbook 2013, p. 7.

“Venture capital is quite unique as an institutional investor asset class. When an investment is made in a company, it is an equity investment in a company whose stock is essentially illiquid and worthless until a company matures five to eight years down the road. Follow-on investment provides additional funding as the company grows. These rounds, typically occurring every year or two, are also equity investment, with the shares allocated among the investors and management team based on an agreed valuation. But unless a company is acquired or goes public, there is little actual value.”

REQUIREMENTS

The tech- music startup is a business venture which when managed well and with favorable external conditions has the potential to deliver high profits. The drawback is that the music industry is not very predictable as the trends keep on changing and it might take a long time sometimes more than ten years before an artist can hit in the industry and thus provide an opportunity to get back on the initial investment.

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