Scaling up your startup enterprise involves seeking seed funding. Read below to know how and when to raise Venture Capital financing.

Entrepreneurs are logical people with pragmatic thinking abilities and an urge to make a difference. While logic says that if the core fundamentals of an idea suffice all the variables in the equation, such as market opportunities, the supporting infrastructure, and the operating team — it should naturally pave the way for easy investment.

However, there is a wide gap between theoretical thinking and reality. And landing that elusive investment is what often sets apart dreams from reality. The sheer thrill of preparations and groundwork for presenting an idea to convince an investor and landing funding for scaling the idea to a business operation is exhilarating, to say the least. It reflects the potential of the entrepreneur in a new light. However as exciting as it sounds, there are considerations to seeking funding.

Raising Capital Funding

The founder of ABC Software had generated 5 million dollars in sales revenue over the last 5 years of hard work and dedication he had put in. He envisaged his business growth to the next level and was convinced of generating $11 million in the next few years only if he could scale up operations. All that was required was cash. Trips to banks for an upfront loan based on his past results almost ended up futile as ten banks refused to extend his credit line. The founder finally learnt that raising capital via Venture Capital Financing has potential.

VC firms are a board of experienced people from different fields that have expertise in envisioning the reality of proposed ideas. Raising VC funding for your idea opens the door for accessing this panel of people for their advice and support on matters regarding the business aspect as well as the growth of the startup.

Entrepreneurs should consider this opportunity to be a blessing and work in close tandem with VCs to not only ensure their visions are aligned but also to keep both parties aware of developments and progress.  This way no detail or information is lost upon both parties and it makes way for bonding between advisors and entrepreneurs. Thus, instilling confidence in forging ties as a single enhanced unit. Once expectations are clearly exchanged and priorities are aligned accordingly, tracking progress, and identifying any roadblock or obstacle becomes easier.

The Cost of Raising Cash

• The Effort, Energy & Distraction:

For all budding entrepreneurs, the timing is of great essence to finalize or decide on opting for VC funding. Often not realizing the effort and energy that goes into getting the cash to reflect in the company account books, entrepreneurs tend to grossly underestimate the effort put in by VC firms to arrange their funding. One needs to understand that acquiring funding is a handshake; both hands need to be extended equally and firmly in order for the handshake to happen. So, simply evaluating the source of funding based on the potential of the idea is hugely misleading for any individual, more so when they are at the helm of affairs.   

It is quite common practice to see in young and emerging companies, managers divesting their time, energy, and attention into core management and operational issues, thereby neglecting the larger interests outlined by the VC firm. Continuing to do so, can often unknowingly draw lines between the startup team and the VC firm which is strictly not desirable.

One needs to understand that winning the funding opportunity is only the tip of the iceberg. The VC firm has agreed to the funding not just on the potential of the idea and its business value but a host of other factors. It is only when an entrepreneur understands the combination of these factors that have to be taken into consideration can he/she land upon the winning formula to succeed.

In order to move in that direction, Entrepreneurs need to work closely with the VC firm’s partnership and take them into confidence. This way they can combine the energy and drive with the vision of the tenured and form an unbeatable action plan for paving the road to success.

• The Process, Cost & Eventual Outcome:

The initial groundwork to convince the VC firm for funding may be repetitive and prolonged. The entrepreneur might require several round trips to the VC firm to present the idea. They may have to face a series of probing questions regarding the same to convince the panel or board that the idea is foolproof and market-ready.

While the outcome is subject to a variety of elements to satisfy the equation, however, one need not get discouraged by repeated visits not materializing in any outcome.  The funds required for giving shape to the project is not a menial figure and the VC firm needs to be fully convinced that the idea is watertight or inching closer towards that direction before they give their nod of approval.

Finally, irrespective of the outcome, the aspiring entrepreneur should not take things personally. Moreover, the outcome is never determined by any single factor but is usually a combination of factors. No individual has complete control over everything in life and sometimes one needs to accept facts as is and use them as a learning experience for coming back better and stronger.

VC Funded Startups: The Entrepreneurial Revolution

As an example, India has witnessed the rise of many innovative concepts taking shape with the advent of technology and the rise of digital media. Many new companies have emerged in the form of startups from incredible ideas and tasted fame in a short period of time.

Riding on VC funding at the right time, Ola changed the cab riding scene in India completely with its convenience and comfort. Snapdeal launched as an aggregator service, also rose to prominence quickly, and established itself as India’s premier e-Commerce brand after raising VC-backed funding. Thereby changing the concept of shopping and transactions in India.

The massive success rate of numerous startups has inspired many to become entrepreneurs and nurture entrepreneurial ambitions. It has also put VC firms in limelight, delegating them tremendous importance and power in deciding the progress of startups and ideas.

When to scout for VC Funding or Investment Opportunities?

At this point in time, if a budding entrepreneur starts contemplating their options before diving to acquire capital funding, it is wise to know the various factors which VC firms take into consideration before taking the time to give in their nod of approval. So, one might want to know how this time is utilized by their prospective investors or by a VC firm. 

1. The idea or concept for the business should reflect the potential for scaling to an extent that it would invite applications for funding for returns. So, simply coming up with an idea should not inspire the incumbent to seek capital funding.
   • Plying it out to develop a prototype and polish its rough edges.
   • Rolling out a working model for a test run to see.
   • Identify the obstacles for application and spotting the inherent deterrents that may pose a roadblock for the same to be launched into the market are the obvious action points for any budding entrepreneur before they can feel confident to pitch it to a VC firm.
2. After laying down a few test runs and arriving at an inference regarding the obvious roadblocks in the way of implementation, the next step for any entrepreneur should be to analyze the business model and the financial road map for their product or service. The financial predictive analysis should have supporting evidence to forecast the revenue generation for the next 5 years. With these facts and figures forecasting sales returns and the product mapping, one can feel confident to present their idea to convince the panel of investors. 
3. With the field set up to invite investment for the initial level of product development, one can set the ball rolling initially to establish their startup and apply their planning to match the targets projected for the initial five years. Once operations are aligned to match this objective, the founders can slowly and gradually relieve themselves partially from the core competency area. This is to focus on the second round of investments for scaling up their operations and taking the company to the next level.

How to choose the right time for VC Funding?

• Entrepreneurs who have started their own venture by bootstrapping their start-up initiative should always rely on their own instincts to decide when to scale up operations.
  • Is the product or service that they are rendering a guaranteed crowd-puller with recurring demand or
  • Are they simply jumping onto the bandwagon hoping to find buyers for their product?

Enabling your company to VC funding at an early stage will ensure that the product or service is made market-ready in a short period of time.

This is a learning experience for any entrepreneur as they get to work with professionals far ahead of them in terms of business vision and foresight and they are also exposed to the intricacies of industry-specific business insights which was earlier unknown to them.

• VC firms often enter the picture at a point where they envisage an opportunity for change for the better. This results in a rapid makeover of the incumbent brand which comes at the cost of additional capital infused by the VC firm.

In addition to the same, they also provide a package of additional benefits which add substance to the entire setup. Examples include access to a board of advisors for expert advice and direction. Or even access to infrastructure or technology benefits as and when applicable to provide better stead to the startup team to inch closer to their goals in a shorter time frame. This is a combined effort to provide complete support to the entrepreneur and startup to achieve their laid down vision earlier than expected.

• The freedom of operating at your own pace and taking operations in control can be compromised if you choose to go for VC funding at an early stage when the product or service that is being offered is still not ready for the market. Under such circumstances, in order to meet aggressive marketing strategies, the working policies and key responsibility areas are changed to impact better performance.
  
• The daily operations of the Startup are part of a system within a hierarchy with the Entrepreneur at the top of it. However, there will an element of accountability above the entrepreneur outside the framework of their immediate work environment but still very much an integral part of it. 

Like all great achievements which come with sacrifice, any aspiring Entrepreneur should be ready to make sacrifices for the growth of their startup, and then it will always be the right time for receiving funding. Having a vision and keeping track of progress, can enable any entrepreneur to have a complete command of the state of affairs within their company.  So, choosing VC funding can be a boon depending on the time and situation when an entrepreneur opts to go for it.