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Venture Funding vs M&A

If your company is facing a lack of funding for its business ideas or has decided to sell assets, part of the whole company, then the concepts of venture capital and merger takeover come into play. In selecting one of these two options, business owners must consider the current situation of their firm and their vision for the future. In this article, we will look at the main differences between M&A and venture capital from the perspective of the target company.

Venture Funding vs M&A – the main differences

An M&A transaction is the process of either a merger of two companies or a takeover of one company by another. In either case, as a result of this transaction, two separate objects become one whole. Of course, in such a transaction, the whole principle and structure of the company’s goals are completely changed. Depending on the conditions of the transaction, sometimes this company may remain independent, and sometimes it may lose its brand and start working in a completely different way. The management and staff of the company may also either change completely or remain the same.

Many factors can cause a merger and acquisition transaction. Companies may merge to expand market share and improve competitiveness, or to use each other’s resources and knowledge.

The financing of venture capital, in turn, is very different, and it is especially noticeable in the aspect of the change in the identity of the target company, to be more exact, it does not affect it at all. The venture capitalist does not seek to control his investments. Venture capital amounts to a huge amount, as investors hope for higher profits in the future. The money that venture capital financing provides goes directly to the firm, not to the owners’ account, as if it were a purchase. Once the process has taken place, the same employees continue to work for the company.

So what is the best deal to make? Below we’ll look at some aspects that you can study to make the right decision.

Autonomy

If you want to continue to be in complete control of all aspects of your business you should still be prepared for equity financing. In both deals, the investors become part of your company and have power over the company. With venture capital, however, the notion of independence is much more pronounced.

In a merger, even if you and the outside company are on equal footing, your operating structure still suffers changes and transformations and ceases to be one.

Synergy

If you want to quickly achieve significant results, achieve some goals or increase your capital, then M&A will be much more beneficial for you. After all, when you join forces, you create synergy, which rapidly moves you forward.

Venture capital doesn’t give you that kind of push, because its funding and expertise may be limited.

Exit and Risk Profile

In this case, it all depends on the circumstances. If you are fully aware and wish to be less involved in the company, want to get your profits from selling shares and exist at a less stressful pace, then M&A is your way out, but if your company is quite young, full of ideas and rapidly growing, then M&A will not do you any good.

Venture capital helps young companies and startups to develop, it gives an impetus, a sum of money, and your task is to take that money to the next level and multiply it. For a more experienced company, it’s not only harder to get funding, but it’s also not appropriate.