Can Startups Survive Without Venture Capital?

Venture capital investment is the lifeblood of startups, but reports by The New York Times released on Wednesday (June 1) put a spotlight on a different breed of entrepreneurs that shy away from taking investor funds.

According to the publication, some startups are beginning to see the value in not accepting venture capital.

One entrepreneur, Ron Rudzin, told the publication he declined VC funding because it changes the way business owners spend their money.

“People who raise money, rather than be self-funded, tend to spend wildly because it’s other people’s money, and they throw a bunch of stuff on the wall and see what sticks,” he said. “I don’t do it that way. I’m much more meticulous and efficient. I might go a little slower, but in the end, I believe I win.”

Another entrepreneur, Harrison Tang, simply said his company doesn’t need outside investors. But the decision not to receive venture capital wasn’t necessarily his own; according to reports, his startup was turned down by angel and VC investors, and Tang was forced to go it alone and borrow from his father to get by.

And yet another startup founder, Dana Ehrlich, used savings and outstanding student loans to take out debt financing; angel investors, he said, wanted what he considered to be an unfair portion of the company’s equity.

But reports noted that these entrepreneurs are in the minority when it comes to venture capital.

“It’s a huge anomaly,” said Small Business Administration Head of Innovation and Investment Mark Walsh in an interview with the publication, referring to the trend of startups financing themselves. Walsh said he estimates just one in 50 store front startups, and one in 10 online startups, build up their companies without venture capital.

Walsh did, however, point to the risks associated with accepting venture capital: most notably, the challenges entrepreneurs can face after accepting financing without reading the fine print, leading to the loss of shares and profits to venture capitalists — or even losing a place on their own board of directors, reports said.