The advantages of venture capital over bank loans

Venture capital is not the only answer. But it’s one of the few answers if you want to take your business to a significantly different level. Many other financial avenues are closed in the current climate, and non-financial adjustment, while potentially positive, will not have the same impact.

Recruitment attracts entrepreneurs. The UK is without a doubt one of the global centers for recruitment. There are more agencies in London than in the entire US, but that makes it difficult to stand out from the crowd.

Venture capital vs. bank loans

Taking a significant step forward with a business usually requires investment and there are generally two recognized financial avenues. The first is a bank loan and the other is venture capital (or private equity).

If you’re going down the bank loan route, remember that a recruitment agency is not an asset-backed business (aside from its borrowers, who typically attract working capital funding). Assets leave the office at 6pm every night and hopefully return the next day.

Traditional banking has never been more difficult than it is now. Many cases have been reported in recent years where companies have taken out loans from a bank that have been able to repay interest but have breached the long list of bank covenants. These covenants are scrutinized intensely by super-zealous analysts who seem all too willing to ring the alarm bell and send the bank’s friendly business support team on their heels. This, in turn, often leads to them bringing in the admins… and the rest is history in many cases.

Undoubtedly, the dangers of getting bank loans were greater than ever, riddled with high fees, covenants, ratios, and draconian penalties for overcoming the hurdle of even getting one.

The alternative method of raising finance is to attract an investor such as a venture capitalist, whereby you sell some of your equity in exchange for a long-term investment. However, this is no picnic either. Nonetheless, it is widely considered to be the most credible alternative to bank credit.

Benefits of the venture capital specialist;

Knowledge; When you choose a venture capitalist with experience, or preferably focus, in your chosen market, you gain a partner with significant insight and hands-on experience.

Counseling & Mentoring; Your expertise will be extremely useful in relation to acquisition or strategic advice, management infrastructure, succession planning and of course exit. If you have never participated in an exit, an experienced partner is invaluable, both for practical advice and for business preparation and contacts in the market. You will then not only create general value, but also unlock the value of equity, a specific skill that many owners do not yet have because they do not need it.

Understanding; The right VC partner takes the time to understand your business. If they have experience in the recruitment industry, they will understand the cause and effect of specific recruitment issues such as seasonality, pay cycles and abandonment. Therefore, they will make more informed decisions and understand that the company’s assets are its people.

Additional funding; If additional financing is required in the future, a VC will provide important support either by increasing bank lending or by making further investments of its own.

Contacts and Networks An investor, especially one well connected with the recruitment industry, should be able to leverage their wide range of contacts across their business networks, from PR agencies to banks, from accountants to advertisers. Anyone who can help you take your business to the next level and beyond.


Attracting investment can exponentially accelerate the growth of your business. If chosen wisely, it can support your plans and take some of the pressure off of management.

Traditional bank credit today is hard to come by and inflexible. I would also argue that they have little additional benefit. VCs can bring real value from their experience and contacts, especially when they are industry-savvy professionals who have held leadership positions and have hands-on experience in value creation. Additionally, when a VC invests their own money, you can be assured that their commitment to wealth creation is 100% for all shareholders.