There is a common assumption that you need to raise money from outside sources to start a viable business. In fact, the vast majority of small businesses are started solely with the owner’s money and time. Some businesses seem to simply require outside investment, particularly if they require expensive equipment, substantial inventory, significant labor, or the like. However, most business ideas can be modified into smaller startups without major capital needs and become the ultimate venture over time.

There are pros and cons to raising outside capital for a startup, and the decision to pitch an entire business idea or tweak it to fit your own budget may be driven by some of these factors.

Advantages of raising external funds

Money

Obviously, the main advantage of raising capital is that you have money to spend. All of your initial ideas can be implemented and if your plan is well researched you will have no problem staying afloat during the early stages of operations.

Value Added Investors

Some investors include their own experience in the investment agreement. In these cases, they are essentially paying you to mentor them.

Share responsibility and risk

Bringing in partners redistributes the risk, and potentially the responsibilities, of entirely on your shoulders to the proportions agreed between you and the investors.

Presumption of Competition

Customers, vendors, and other investors may perceive your business idea as more viable simply because you have already secured significant investment.

More aggressive projections

Knowing that you’re starting out with enough of a budget to meet all of your best plans can be the motivation you need to swing and aim for a home run out of the park.

Disadvantages of obtaining external financing:

Lost of control

Once you split your capital with an investor, you don’t have the ability to fire them outright. Depending on the deal you make, each decision may require a discussion with the other person. And, the more you accept as an investment, the more power they will want and wield.

Limited Exit Strategies

Along the same lines as before, once you partner with an investor, it’s no longer up to you when and how to exit the business. You can’t always pass it on to your children, or sell it to an interested businessman, or just close the doors.

altered focus

With plenty of cash in the bank before launch, you’re more likely to focus on spent money that doing money… maybe not the best culture for a thriving company.

Overconfidence

Confidence in your idea and abilities is essential, unjustified overconfidence is simply dangerous. Receiving an early influx of cash in such a way that there are no problems associated with getting it up and running can develop a culture of profligacy and waste…an attitude that is hard to overcome once the cash runs out.

Whether or not to seek external financing and how much to ask for is a decision that only the entrepreneur can make. Be sure to consider the long-term outcome of bringing in partners or taking out large loans. If you’re comfortable with the drawbacks of external funding, you can get your idea to market much faster. Otherwise, it may take longer to take off, but you’ll be in the pilot’s seat for the entire time. Whatever you do, stay focused on the end goal and don’t let cash issues detract from what you’re trying to do.