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.”