Should a Service Provider Pursue Venture Capital?
An unusually brief thought from me; I’ve been asked this surprisingly frequently lately… Is Venture Capital a viable path to investment for businesses largely service based?
Save yourself the headache of spending so much time seeking capital there, the answer is essentially, no.
Venture Capital serves Companies (S-Corps and C-Corps) that exchange equity (ownership) in the company for capital. The investor is making the investment in the business with an expectation that they will get a return on that investment in the future, by way of the sale of the company (acquisition or IPO).
These investments are largely made in the company to support the things that create scale-able value that establishes a market share: innovation, marketing, and team.
This is how companies like Uber, Google, and SpaceX raise so much money and can be worth so much — we all know them, they are innovating, and they have incredible teams worth something substantial in and of themselves.
Service oriented organizations (agencies, firms, LLPs, and the like) are largely only Team and Marketing.
Establishing a substantial market share without investing in technology is difficult, but can be done. There are many billion dollar companies built on little more than marketing.
BUT establishing a substantial market share as a pure service based business is incredibly difficult — much of the value is in you alone… when you leave, what is the business worth more than only the next deal?
You’re likely better served looking to banks and other forms of debt, business investors (who will take a share of the profits), or MAYBE Angel investors who really want to support what you’re doing.
Venture Capital will look to how you’re not just providing a service, but building a sustainable market share that is neither dependent on you nor people providing the work to customers.
Originally published at seobrien.com.
