Banks and venture funds are notorious for trapping company owners in bad terms. Tokenized equity crowdfunding helps you to collect capital on cheaper terms, whether you're a small or large business. In this article, you'll find out about the issue with banks and investment capital, how crowdfunding operates, whether it's a better solution to raise capital, and how to start your crowdfunding initiative.
The biggest disadvantage of finding a single large investor or a small group of large investors is that they have significant negotiating power. What this means is that if the company takes money from a single investor, that investor decides the terms of the deal, such as the interest rate charged by the bank or the equity stake you would give, and the interest rate or equity stake ends up being very high. This is a challenge that affects all companies, not just entrepreneurs and small businesses. In reality, in our consultancy practice, there are businesses from the farming or manufacturing fields that are unable to fund their projects because the interest rates charged by banks are intolerable to them.
Venture funds aren’t a better solution since what they want from you as a business owner is not simply to be profitable but to kick into the level of the next Facebook or Amazon, and sell at a premium. That is, if you are unable to work on such terms, your business won’t be considered. Furthermore, it is easier for them to scale your company than let you remain a simple-to-run and profitable business. Thus, venture capital is not the best solution. If you want to learn more about banking and venture financing, watch the video on the cost of capital
, which explores far more deeply and technically into the topic.