Last week I was talking to an entrepreneur who had built a solid business, growing modestly with plenty of room to run. During the conversation, the question came up about whether or not to raise institutional capital.

Over the past several years, the startup has raised a few angel rounds and some debt from angel investors. That capital provided the necessary resources and team to get the product to market, develop strong distribution channels, and scale to millions of dollars in revenue. However, the investor base doesn’t have the financial capacity to continue funding losses, so the business has been mostly self-sustaining.

The idea, of course, is to grow faster and enter new markets. But without more capital, growth will be limited.

Benefits of Not Raising Institutional Capital

Some of the benefits of not raising institutional capital include:

• Liquidity flexibility. If the company continues to grow and becomes highly profitable, investors would welcome dividends. The current capital is patient and has no exit timeline.
• Longer-term decision making. Without pressure from institutional investors, the entrepreneur feels freer to make decisions that benefit the company long-term, rather than hitting short-term, potentially artificial milestones.
• Strategy changes. If a new strategy or idea comes along, it’s easier to shift the business and go a different direction. Most investors, when something is working, don’t want to avoid new risk.

Benefits of Raising Institutional Capital

On the other hand, raising institutional capital offers significant advantages:

• Limitless capital. Assuming the business performs well, there’s abundant capital available for companies at scale with strong growth prospects. Despite the perception that capital is scarce, at the right stage it actually becomes plentiful.
• Fuel for growth. Additional capital allows for new hires, product development, geographic expansion, acquisitions, and more aggressive growth. While some markets pull you in naturally, many require pushing hard to build share quickly.
• Credibility and visibility. Once you’re in the system, there are conferences, summits, speaking opportunities, and broader recognition that come from having institutional investors’ stamp of approval. Even raising a small amount gets you on the radar of larger investors down the road.

The Entrepreneur’s Choice

There’s no right or wrong answer when it comes to raising institutional capital. The best approach for an entrepreneur is to be intentional and consider personal and team goals and aspirations.

Some want to swing for the fences and build the biggest company possible. Others want to balance lifestyle, flexibility, and control.

The next time an entrepreneur says they’re going to raise institutional capital, encourage them to carefully enumerate the pros and cons, and make sure the decision is thoughtful.