Every startup business is likely to experience capital formation issues, which often cause young businesses to suffer delays and competitive disadvantages that can stifle growth or keep a company from ever really getting off of the ground. Venture capital funding is a fantastic source of necessary startup capital. When working with the right investors, startups can have amazing access to high-level advice and talent along with the cash they need to operate and grow. As is the case with most benefits, however, there can be costs. In this article, tech investment expert Hiruy Amanuel discusses some of the potential pitfalls involved in accepting venture capital investments that are not always obvious.

Venture Capital Firms Seek to Minimize Costs and Maximize Return

Venture capital funds have their own investors to answer to in terms of performance and costs.  Most investment agreements include multiple fees for management, accounting, auditing, and legal expenses. These fees can eat significantly into the total funding available for your startup.  Additionally, most venture capital funds expect returns of three times or more of their initial investment in order to provide the returns on investment their own investors expect. It is always absolutely critical that a startup receive independent advice about the terms and conditions regarding fees, expenses, and income sharing from competent financial and legal advisors…

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