Funding Your New Adventure: Venture Capital vs. Leveraged Entrepreneurship

Venture capital has always been sexy. Leveraged Entrepreneurship? Not so much. Sure, you can fund your business venture with either, but when you take venture capital, you get to pretend you’re changing the world and making it a better place. But what if I told you boring and sweaty was the new sexy? 

Entrepreneurs and investors are tired of buying lottery tickets from VC firms and hoping some of the paint they threw at the wall of startups “sticks”. Rising interest rates have single-handedly brought sexy (cash and profits) back. Let’s look at how this impacts the economics for any entrepreneur and why everyone who’s started (or even better IMO bought) a business should think of profitability as a religion instead of something to reach “at scale”. 

Venture Capital vs. Leveraged Entrepreneurship: Understanding the Investment Landscape

Ignition: Venture Capital Explained

Think of venture capital as rocket fuel for startups. These investors are all about scale and growth, betting on early-stage companies that could disrupt markets. With an eye on future valuation potential, venture capitalists pour resources into (many) businesses they believe can multiply in size rapidly.

Raising money from a venture capital firm isn't just about cash; it's also tapping into a network of tech-savvy advisors eager to drive innovation goals forward. Sure, these folks might take a hefty slice of your pie in equity shares, but if you're aiming to be the next big thing at warp speed, this could be your crowd.

Nowadays though, getting that golden ticket – I mean, venture capital funding – is tougher than finding Wonka's Golden Tickets and you’re probably not Charlie. Competition is fierce; everyone wants their shot at becoming the next unicorn.

And here’s the thing - in addition to that big slice of your profits that goes to the venture capital fund, you’re also very likely giving up a lot of control of your company when VC is involved. They’ll be on your board or otherwise all up in your business pushing very hard. Because their main focus at the end of the day is getting big returns on their investment. That’s their whole reason for being. These are high-stakes gamblers. They want their returns and will exert pressure to get it. 

Don’t get me wrong, they do provide benefits and have given opportunities to a lot of people who might not have made it otherwise. They’re not bad guys. But you need to understand the conditions upfront. They’re not for everybody. 

The Magic That is Leveraged Entrepreneurship

If you want to maintain control over your baby, let me introduce you to Leveraged Entrepreneurship. Think of mortgages. You can get a loan against your business or the business you want to acquire and effectively “bet on yourself” to repay the debt and own the asset (the business) free and clear after repaying the loan. Unlike Venture Capital or Private Equity firms, banks want to leave you alone and let you do your thing…as long as you make your monthly payment. 

Leveraged Entrepreneurship happens in most cases via a bank that is a Small Business Administration (SBA) lender. It’s an SBA-backed loan. In this case, you’re gaining capital based on the future predicted profits of your business and you use that cash flow to pay the debt off. You’re betting that future cash flow to get capital in the present. 

Of note: taking on this type of funding does carry more personal risk. Until you’re established you’re taking the risk on your personal credit and, potentially, putting your assets at risk. You’re also keeping the majority of the rewards. You’re the captain of your own ship. Some people, like me, much prefer that over sharing the helm with others, fighting over which course to take. 

The beauty is, that while you’re taking 100% of the risk, you also get 100% of the rewards. You maintain ownership and you get to do things your way. 

Other Funding Sources 

There are two other methods of funding I want to bring into this conversation: Bootstrapping and Private Equity. Bootstrapping your business means you build it from zero and don’t take on any debt. You only scale by investing what you’ve already made. This is usually a long, slow process. And it’s hard to pay yourself because you’re likely investing all your profits back into the business. But for some people, it makes sense as it’s more aligned with their tolerance for risk and other things going on in their lives. 

Private Equity is usually a large amount of capital taken on in a much later stage of business - not for startups. Private Equity firms infuse a lot of cash and improve efficiencies - squeezing processes and resources to make the company as profitable as possible. They usually bring in their own CEO and you lose some ownership of your business. 

Full Disclosure 

For the record, one of the businesses I’m involved in is a Private Equity firm, Fruition Capital. It’s not a giant PE firm. We really like helping businesses on Main Street, not Wall Street. We fund already established businesses and entrepreneurs looking to acquire companies. 

We provide most, if not all, of the equity in your acquisitions while empowering you to retain complete control and the lion’s share of the ownership. It’s like a PE firm for acquisition or leveraged entrepreneurship. We help businesses that need $500,000-$1,000,000 of equity to pair with the loan they personally guarantee. That’s not the biggest reason I recommend Leveraged Entrepreneurship but it’s certainly one of them. 

It’s like those old hair club for men commercials “I’m not just the president, I’m also a client” kinda deals. I’m involved in Leveraged Entrepreneurship now because it was so helpful for me in my entrepreneurial journey. I believe in running my business my way. And I don’t want to give up huge chunks of ownership and profits to institutional capital. That’s the environment that works best for me - it may be different for you. 

At Fruition Capital, and many others, you receive access to a large network of consultants and service providers - everybody that’s going to make your life as easy as possible because your success is our success. We are incentivized to make sure our sponsor succeeds. But we’re more like a fun uncle as opposed to a domineering, sometimes overbearing, runs your life like a military school dad. 

When to Choose Venture Capital for Your Business Endeavor

There are some cases when venture capital makes sense. If you're at the helm of a rocket ship disguised as a startup, strapped in and ready for the stratosphere, venture capital might just be your ticket to Mars. This isn't child's play; we're talking serious innovation goals here. When every second counts and you need that financial fuel to propel your brainchild into hypergrowth, VC is like nitrous oxide for your engine. Venture Capital has a very narrow and clear goal to grow as much as possible as fast as possible. But it’s not as easy to get as it once was. 

Growth is the name of the game in venture capital circles. These investors are on a constant lookout for businesses that promise scalability and rapid expansion, but here’s the kicker: they don't just hand over cash and hope for the best. They're more like backstage directors in your startup drama—involved, vocal, and expecting a blockbuster hit.

Venture capital can feel like hitting the jackpot for early-stage companies dreaming big. But it's not all high fives and launch parties. Accepting venture capital means you're also signing up for a whole new set of expectations and pressures. If you know that and you still feel VC is for you then, by all means, go for it. 

In my view, venture capital makes much more sense when you’re not a startup and you’ve found product market fit. Once you’ve got your business and you’re making a profit, maybe not a big profit, VC can help you grow. Cash = scale. When you’re taking on funding at that point, you know what you’re going to spend it on. You’re not using venture capital to figure out what you’re going to do. 

For me, I’m a Leveraged Entrepreneurship guy all the way. When I’m growing my company, I’m doing it for me, my family and my employees and their families. There’s no mandate for me to grow, no matter the collateral costs. I don’t need to necessarily grow to be successful. As long as I pay my bills, I’m good. That allows me, a left-brained entrepreneur with right-brain capabilities who cares about things like making sure capitalism works for humans instead of against us to operate my business in integrity at a pace that works for me. 

Leveraged Entrepreneurship is Your Plus One

Bootstrapping your business or getting venture capital as a startup… those scenarios mean you’re building from the ground up. You’re starting at zero and have nothing to build upon. You’re laying the foundation and everything before you can even start building. Leveraged Entrepreneurship lets you start at one. Leveraged entrepreneurs are usually buying a business after the startup, scrappy phase. 

So think about what kind of entrepreneur you are - someone with a new idea you want to build from the ground up or someone who wants to buy in once things are already established. Again, for me, it makes a lot more sense to start at one instead of zero. I’m not a super techy new product imagination guy. I don’t feel the desire to build something unique from the ground up. I am interested in running my own business and my own life. Leveraged entrepreneurship is the way to go in my case.

In Closing…

Capital is more than just money—it's potential. 

Keep this in mind: venture capitalists seek scale and rapid expansion; they're your go-to when innovation calls. And you don’t have to put your personal credit at risk. The downside? Giving up a lot of control over your business. Plus, if you do end up a smashing success, you’re going to be handing a big chunk of those profits to your VC investors. 

On the flip side, consider Leveraged Entrepreneurship which gives you a bit of a headstart. You will have to put your personal credit at risk. However, you get to maintain ownership and run things your way. It may be less flashy, but if you’re looking for longevity and control over your own future, I can’t recommend it enough. 

Thank you for reading Capitalism for Humans. This post is public so feel free to share it.