Small to medium sized firms will arguably always feel acutely sensitive when it comes to the flow of money into and out of the businesses. The fragile nature of the startup means that an entrepreneur will be counting every penny and potentially looking for investment to back up expansion and growth efforts. The option to engage with venture capitalists raises its head, but what does this entail and what are the risks?
Financial website Investopedia outlines venture capital with the following definition:
“Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.”
High risk… but for who exactly?
Opening up to venture capital involves a certain degree of disclosure in terms of company accounts, monthly finances, intellectual property and internal data… and this in itself could be used an method for those directing their efforts towards data theft for companies at this stage of growth, potential expansion and development. Be careful to ensure you know WHO you are talking to and analyze their credentials before you open up information that you would not wish to lose.
Blueprints, USPs and secret recipes
Information to be protected includes sales model propositions, special recipes, unique selling points and/or product blueprints is typically what underpins and defines the firm’s position at the point at which it starts to look for investment. Because venture capitalism is not always offered in monetary form and may instead be presented as technical expertise and consultancy, an “opening up” of company secrets may be mandatory. Once again, think about what you are giving away access to before you do it.
Remember, expansion through venture capital funding can be wildly successful but it can also have risks. Compared to organic growth from within, certain compromises will have to be made, and business controls, at some level or other, will typically have to be relinquished. Information and data security risks are naturally created at this point.
Whether a small to medium sized business looks to a venture capitalist or an ‘business angel’ or a more formally established venture capital trust, it is important not to confuse curious interest with solid investment with a supporting set of legally binding documentation. Did someone take a look at your amazing business idea, get to know you, spend some time with your employees and get to know your company premises and systems — to then just leave?
What systems access passwords did you give away, how much data access did you give away, is your company database still safe?