Venture capital (VC) comes from wealthy investors and other financial institutes who invest money in a firm for high rate of returns or partnership. If you are a new entrepreneur, you will have a tough time raising venture finance for your business. It helps small businesses who find it difficult to raise money by loans or who don’t have access to the capital markets. It is a high risk for the investors but the returns are above average.
Venture capitalists are very choosy about what company they want to invest in. The first area they look for is whether the company is high or has an exceptional growth as VCs prefers to invest in a faster growing company and bounds over next 5-10 years. You should know ways of raising capital.
Before you indulge in venture capital raising, there are few important things you have to know;
1. Target investors can either make or break the funding campaign, so choose your investors very carefully after getting all the thorough knowledge about the company. Talk to people who have knowledge about raising venture capital. Every company has its own rules and philosophy; some invest in early stage and some later stage.
2. You can prepare a short and impressive power point presentation with an executive summary. Give them a brief about what type of investor they are seeking. Provide them with the details of how their company can benefit from the investment. The document should cover all the details about the team, marketing strategy, capital required, size of the business and structure of the capital.
3. Be well prepared before you approach the interested investor. The investors look for a great team and this could be the right time. Share the information regarding operational agreements, bylaws and all other documents regarding security check. Assembling a due diligence frame is important for the investor to know their role with the respective company.
4. Set a timeline for the investor to feel some pressure to take a quick decision but don’t make a fool of yourself by not having a term sheet in your hand by then. Term sheet helps you make your financial offer where you can get the best deal possible. If there is only one investor who is interested, then negotiate very carefully. But if multiple investors are submitting their term sheets, then you can have a better control due to the competition.
5. Closing the deal presents its own definite challenges. VCs are making a lot of money in the businesses by bagging the best company. Make a team who can execute your business efficiently to make money for you as well as your investors.
As an entrepreneur, know where and how to use your money. You dream of where to invest your money, what you could do with it, use to develop, can hire people and many more. Venture capital helps in building a successful venture. Follow the rules and make it happen for you.