For existing business owners and prospective entrepreneurs who have a great business
idea worth chasing, finding seed and early stage funding may be a difficult task.
Companies that seek small business capital may choose bank loans or even use their
own personal savings if the startup costs are not too high. For most companies,
regardless of size, venture capital
funding may serve as the best choice. However, the issue of who venture
capitalists are needs to be addressed before digging any deeper.
Venture capitalists are a group of investors
with plenty of funds at their disposal since they use other people’s wealth for
each business deal. Mostly known for their investments in later-stage companies,
many venture capitalists also provide
early-stage funding as well. In exchange for their invested capital, VC’s
often expect a percentage stake in a company, a well-respected board seat, and a
large share of future company profits.
Venture capitalists are actively searching for
new investment deals. Often times, they base their decisions to invest by
looking at a company’s overall success and prospective profitability. Since VC’s
have gloriously emerged from the Silicon Valley, they have mostly been known for
their investments in software and biotech companies. However, venture capitalist
firms can be found in just about every available industry.
VC risk of investment and level of involvement
Like angel investors, venture capitalists put their money at risk for every investment
made. To compensate for such possible losses, they believe they deserve a large
ROI return. By partnering with venture capitalists, an entrepreneur gives them the
possibility of influencing their business; if things are running smoothly and the
company is generating expected profits, then venture capitalists will probably not
interfere with day-to-day operations. However, should things not develop the way
they were originally expected, the
entrepreneur can count on the VC to take over
company operations to prevent its possible failure.
VC application process
There are thousands of companies that actively
seek funding, but of all the applications, only a few are chosen by venture
capitalists. This process is extremely competitive since VC’s put other people’s
money in jeopardy. In order to be accepted, the
entrepreneur must carefully research
everything about the market and their competitors. They are then encouraged to document
such findings in their business plan. If a prospective entrepreneur manages to impress
the venture capitalists, then an in-person meeting will most likely ensue. The entrepreneur
should also present financial figures to the prospective VC firm, specifying what
the startup costs will be, the possibility of obtaining necessary capital at a later
time of development, and what type of profits should be expected. It is important
entrepreneur try to provide timeframes and specify how long they think
it will take until the company becomes profitable.
After a meeting is secured with a VC firm, the
new business owner should concentrate
their efforts on a professional presentation. This is crucial for the funding decision
and in forming long-term partnerships. The meeting is the barrier which separates
the entrepreneur from a signed contract. Access to these funds will be vital to
the new company; therefore, the verbal presentation should be as detailed as possible.
They must be clear about their values, background, and company goals. An explanation
of why the
VC firm should invest in a company and how and when that investment will
pay off are also crucial to address. Once the speech or pitch is perfected, only
time will tell if the VC firm is interested enough in investing.
It takes more than just a great business idea to make a new company successful. Funding is needed to market the idea and sustain the business. By successfully
determining if and how an idea can be applied into practice and its market potential,
the entrepreneur will have less of a chance of failing. Venture capitalists provide
a great way for new entrepreneurs to obtain the needed
startup capital and properly
market their ideas to make their companies successful.