If you are new to the business and entrepreneurial world, there would be a lot of things in your mind to organize and consider. Here are tips to find venture capital funds for your company. Get a head start by understanding what VC firms are, how they work, and how you can find the right ones.
- What is Venture Capital Funding?
- Why Do Startups Need Venture Capital Funding?
- What are the types of Venture Capital Funds?
- How to Find Venture Capital Funding for Your Business?
- What are the basic factors to consider before approaching VC firms?
- Top 5 Tips to Find Investors for your Business
- Summary
As an entrepreneur, you may have a lot of ideas and plans to take your business forward in the best possible manner, however, what is often lacking are the funds to make it all happen. Even with maximum grit, planning, and conscientiousness, the most important aspect remains to be – the capital.
There are several ways in which budding entrepreneurs can obtain funds for their companies. Funding a business, however, can get taxing at times if you are not aware of the options you may have. This is when you must consider venture capital funds for your start-up or early-stage company.
What is Venture Capital Funding?
Essentially, a venture capital fund is an important source of money for beginning and running any start-up across the world. They play a huge role in building the economy, contributing to the country’s GDP indirectly as they open new avenues, platforms for innovation and development.
Barring the complicated jargon, are you looking for an easy-to-understand definition of what venture capital funding is? You could think of it as a company that invests in new ventures after gauging certain factors like:
- Growth of business
- The future potential of product/service
- USP of the business
- Acceptance in public
- Management style, etc.
Venture capital funding helps the business gain capital to kickstart its growth. Of course, it is a risky investment. These funding companies might have a lot to lose since the business they are investing in is relatively new. They might lack real data to back the company up. However, the hopes of outsized returns and good profits based on the knowledge they have are what help them decide if the investment would be worth it or not.
It would be noteworthy to see that the biggest companies in the world like – Microsoft, Tesla, Facebook, and many others began as venture startups.
Why Do Startups Need Venture Capital Funding?
Startups usually need outside investors because they don’t have enough cash flow generated from their operations to sustain themselves. It’s an investment of capital in exchange for equity. Venture capitalists generally invest in high-growth potential companies that tackle a specific problem or need within a certain industry.
Venture capitalists can also provide guidance and mentorship to the founders as well as their management teams. The main goal of venture capital funds is to help startups develop and grow into successful corporations.
What are the types of Venture Capital Funds?
You must first decide what form of cash you want to raise before considering investments. There are three types of Venture capital funds depending on the business phases.
- Early-stage investment
- Expansion investment
- Acquisition investment
1. Early-stage investment:
An early-stage investment is again classified into three types:
- Seed investment
- Start-up investment
- First-stage investment
Seed investment is the money given to an entrepreneur to get things kickstarted. Startup investment is the fund given to a firm to help it develop its services and products.
When a company requires money to run its operations, it needs a first-stage investment.
2. Expansion investment:
Expansion investment divides into three categories.
- Second stage investment
- Bridge investment
- Third stage investment
Companies get second and third-stage funds to embark on their business expansion process. Bridge investments come into the picture when corporations use Initial Public Offerings (IPOs) as a primary business strategy.
3. Acquisition investment:
Acquisition investment includes the areas of acquisition finance and leveraged buyout financing. The acquisition financing as the name suggests helps firms when they plan to buy another company or section of a company. Leveraged buyout funding is needed when a company’s management group wants to buy another company’s product.
Now that we have a fair idea of what is venture capital funds and how it helps early-stage companies to fulfill their dreams, let us look at ‘how to find venture capital funding for your venture’.
How to Find Venture Capital Funding for Your Business?
Venture capital, or VC funding, is a bridge that connects the solopreneurs of the world with large corporations. It offers small businesses and startups a chance to compete with larger, established players. To achieve this goal, VCs offer their funds in exchange for the equity of the business.
There are several steps to finding venture capital funding for your startup, which we’ll discuss throughout the article.
- Create a solid preliminary plan:
Before you start looking for venture capital funding, it is crucial to have an initial plan that would make it easier for a VC to know what you intend to do with it. This is critical in gauging the viability of your business before investing in it. Create a powerful presentation to convince VCs that your business will be profitable
This plan or presentation must include:
- Your idea
- The market you’re targeting
- Who your customer base is
- How much money you will need
- What percentage of ownership you are willing to give up
Remember that VCs can help you start your business or further develop it, so, show them your potential.
- Ensure your company has a strong team:
The whole purpose of venture capital funding is to make a return on investment. You must start by hiring the right people. Having an experienced team with a successful track record is a great way to get investors interested in investing in your company. So, invest more time and effort into finding the best people for your business.
- Create a list:
These startup business investors have specific focus areas and targets in mind concerning the companies they fund. They also have ideologies and projected growth expectations.
Make a list of all VC firms that invest in the same business ideas that your company revolves around. Whether it is a product, idea, or deal, firms that have a track record for similar investments have a higher chance of giving you a shot.
Also, check out the records of the VC firm online to be able to understand their patterns. Knowing more about a company can help you understand the nitty-gritty of it, thus, making your pitch stronger.
While you make this list, also consider the location of the investor, funding your business (potentially). Some venture capital funds are only allocated to local startups while others also believe in going global.
- Send out emails
Since venture capital funding is a highly competitive market, you may have to spend some time looking for the right investors. When approaching potential investors, you must send them a courteous email introducing yourself and requesting an appointment or phone call. The meeting can be over a cup of coffee or breakfast or digital apps! It always helps to get a warm introduction and not cold email, so try to go through a connection for that first touch contact.
- Follow Up
Potential investors are overwhelmed with requests weekly; hence, follow-up is essential. If you’re seeking money from an individual or a venture capital firm, a lot of people within the company will make investment decisions. You must reach out to all of them for follow-up and keep in touch with each one separately, so they know who you are and stay in touch with you.
- Be persistent but not annoying
You may have to send out hundreds of emails to potential investors, but do not bombard them with emails all at once. By doing so, you will be annoying, and all that they will remember is – “that annoying person” sent all those emails!
Instead, establish an impactful first impression by sending one email per week and personalizing each one with your name, your company’s name, and the target person’s name and designation. Add additional personalization flavor to each note customizing it specific to that venture investor.
- Take initiative and never give up
Finally, do not get complacent and expect your venture capital investment to appear out of nowhere. It may take some time; even if you believe it is taking too long, keep going.
Follow all the steps listed above to ensure that your firm succeeds and that you have a better chance of receiving venture capital funding.
What are the basic factors to consider before approaching VC firms?
Although venture capitalists are interested in the success of a business, they cannot afford to put all of their resources into one stake. Instead, they search for winning enterprises that have great management teams, compelling business models, and excellent cash flows.
So there are several details that you need to consider when looking for venture capital funding for your business:
Type of Business: A lot depends on the type of business when it comes to reaching out for venture capital funding. A business idea that is new, innovative, and scalable is openly accepted.
For example, if you are looking to invest in a franchise and looking for a venture capitalist firm for that, it is futile. Likewise, if you have a seed idea with realistic projections at hand then it would be very well considered.
Hence, before reaching out to any venture capitalist firm it is best if we research the market that will give them better insights into the product or service offerings. This should help you understand whether to opt for venture capital funding or not.
Research:
As much as you think that the funds are important no matter where they come from, do not forget that along with the stakes, they might also be purchasing a say in the company. You might want someone who would have the same interest areas and ideologies as your company. Research for VC firms that have similar vested interests.
For example, if you are a startup in Artificial Intelligence (AI), you can look for VCs who have backed similar companies in the past. This way your chances of convincing them will be positively higher.
Market Validation: If you’re hoping to attract venture capitalists, you need to demonstrate that your business is viable. This means that you have a product or service plan that has been well-researched and targets a specific customer base. Ideally, you’ll already have a customer base, even if it is small or niche. VCs want to see evidence of demand before they commit any funds.
The Right Team: Potential investors are interested in learning what kind of leadership your company will have. If they believe that there is a team that can take the business to the next level, they will be more willing to fund and give you a larger stake in the company.
A Scalable Business Model: When you’re raising venture capital funds, you want to come up with a business plan that investors find exciting. Investors want to know that your company will be able to expand quickly and outside of its home market. If you can demonstrate that there are ways for your startup to grow and become profitable, investors will be more willing to invest in your company.
Right Product or Service: If you do not have the right product or service, it’s not going to matter how well you’ve positioned yourself in the market. Even if a venture capitalist is interested in your plan, they will hesitate to invest if they think the product needs more work or refinement before it’s ready for market.
A Compelling Business Presentation: A business presentation is a vital tool for raising funds. It would help if you have a clear, concise, and compelling presentation that demonstrates the expertise of your venture and market. Do not just rely on the facts and figures; also include an intriguing brief on how your product or service is going to make a difference in the lives of consumers.
You must be able to show investors the various aspects of your business, including a business plan and cash flow models. Ensure that the presentation is professional and well-organized, with all information presented clearly.
Be prepared for follow-up questions: It’s an inevitable truth that investors will ask follow-up questions once they receive your pitch deck or meeting request. Ensure to provide detailed answers in your response. If you can, include relevant links or information explaining the answer in further detail. This will leave a favorable impression on them, and captivate their interest.
Top 5 Tips to Find Investors for your Business
Identifying the right investors can be tricky. Here are some pointers to help you discover a qualified investor for your company.
- Find investors who will be committed to your business
Investors won’t be able to contribute 100% to your company. Some investors are better than others, so ensure you pick one that is a good fit for your business and is devoted to seeing it thrive.
- Look for investors who have experience in your field of expertise
Venture Capitalists usually have a lot of experience in the field they’re investing in, so you must find someone who is knowledgeable about your industry and has a track record of success in the market you are trying to break into.
- Look for a potential mentor as well as an investor
Ensure your investor can also act as a mentor or advisor to you and your business. This will help build long-term relationships with people who can offer valuable advice throughout the life of your business.
- Find investors who will be able to help you in the future
Raising venture capital can be a long and complex process, so it’s important that you find investors who are willing to stick along. Ensure that the investor is willing to keep working with your company, even after you’ve received funding.
- Look for investors who have connections in your industry
The investors you choose to work with should have the connections and relationships that you need to help grow your company. This can help attract more attention to your business and facilitate the exposure that your company needs. Also, you can connect with potential partners, clients, and other business associates.
Summary
It is important to realize that venture capital funds are probabilistic for VC firms. It would be your responsibility to reduce the risk factors for them by providing them with what they need to be able to effectively believe in what you are offering.
For you and them to be able to reach your highest potential in terms of profits and returns, make sure to have all your aspects in place. Pitch to the right kind of VC firms for smooth growth and a fast-paced and upwards trajectory.