In my post, How To Finance Your Company: Organic Vs. Investment, I introduced a framework that makes the case for whether or not you should finance your business with operating cash or outside investment based upon your company’s operating cash and barriers. Beyond financial considerations; however, not every entrepreneur that can take venture capital should.

Generally speaking, venture capitalists need their portfolio companies to exit for very large values in order to meaningfully impact their returns. Typically this means eight- or, better yet, nine-figure exits (tens or hundreds of millions of dollars) are required to ‘move the needle’.

As a result, VCs may often opt to pass up opportunities to sell their portfolio companies that are showing strong potential for seven or even eight-figure valuations – they’ll want to hold out for the bigger exit. Doing so usually helps maximize returns for all parties (including the entrepreneur);however, it requires more patience and a stronger stomach for risk.

Further to this point, VCs structure their investments using liquidity preference to align incentives – compelling the entrepreneur to hold out for the big win. Taking all this into account, entrepreneurs should know that getting into bed with a VC typically means setting your sights on going big - very big. If you’re looking for a small lifestyle business or a small exit, venture capital is probably not right for you.