The journey of an entrepreneur starts with an idea. And, if his small company begins to grow, capital is needed as fuel. Out of all the possibilities of funding a business, raising venture capital funding for your startup is one of them and this article will let you know more about VC funding in details.
- What is VC funding?
- How does VC Funding work?
- Logic behind the VC Deal
- Tips on how to obtain venture capital funding for your startup
- 1) Do not say it “VC Funding” when it is just “Angel Investment”
- 2) Do not do anything in bulk
- 3) Make sure you research properly at first
- 4) Ignore companies preying on talented entrepreneurs by trading leads and databases
- 5) Approach the selected and targeted VC firms one at a time and carefully
- 6) Have an instant summary and an excellent tagline
- 7) Design a one-page summary/quick video to be sent in the follow-up email
- 8) When your summary video becomes a hit, work on the pitch next
- 9) Build a business plan ready, right before the pitch and the summary
- 10) Anticipate as the process would take a lot longer than you can think
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What is VC funding?
VC, also known as Venture Capital, is a kind of private equity. To explain it further, it is a sort of financing that is rendered by the funds or firms to small, emerging, early-stage startups, which have demonstrated high growth or that, have a high potential to grow. The VC firms invest in these businesses in exchange for an ownership stake (equity) in the company they invest in.
The logic behind the venture capitalists is that they take the risk of financing a company in hopes that it would become successful in the future. And they get multiple times the return on their investment.
Moreover, one of the features of venture capital is that it is not long-term funding. The basic idea of this kind of funding is to insert the investment into a company’s infrastructure and balance sheet till a predetermined market and size credibility is reached. And, the reason for this is that it can then be easily sold to huge enterprises after which the public-equity markets can begin their venture and produce liquidity.
How does VC Funding work?
It is believed that the firms who provide venture capital funding for your startup serve to invest in what they feel are great ideas and great people. But they are always investing in great industries that would do well, irrespective of the current market and the competition.
The types of venture capital come from both capitalist as well as VC firms focus more on the middle of the traditional industry S-curve.
These people usually stay away from the firms during the early stage where the market needs development, and the technologies haven’t been perfected.
Not only that, they also stay away from the stage where the growth rates slow down and the competitive phrase increases. Moreover, there are just a few major people or firms that offer venture capital funding for your startup left in the world as compared to 1960s.
As mentioned there are many venture capital advantages and disadvantages, the one downside is that they do not put money in the wrong industry as per their idea.
But there are exceptions to this, and it involves the concept stock. And, this is not all to the process; there is a lot more to it.
As soon as the firm provides the venture capital funding for your startup and time has passed by, the VCs would exit the company before it reaches its peak. This is so, that, they can make sure to earn the highest ROI or profit at lower risk.
Logic behind the VC Deal
There are a lot of distinctions of the underlying deal structure in venture capital funding for your startup styles, but irrespective of anything particular, the philosophy does not modify. This is to offer the investors of VC fund both the favorable position for additional investment in case the business becomes a winner and the sufficient downside protection.
The VC industry works like this – four significant players who are the VCs who produce money for their own by building a market for the next players, investment bankers needing companies to sell, investors wanting high returns and entrepreneurs requiring funds.
The VC companies also require security from the perils which comes from investing in others firms. The VC usually is made of follower investors under a lead investor, which is why it is scarce to find a sole VC firm.
It is a standard practice for the VC firms to have two or four groups of investors or people indulging in the various stages of the financing.
Tips on how to obtain venture capital funding for your startup
With all explained above, you might have understood that if you are without any track records, you will not get the venture capital funding for your startup. Moreover, the service businesses do not get VC, which are one of the venture capital advantages and disadvantages. Here are the 10 tips that can help you with obtaining the VC funding for your business:
1) Do not say it “VC Funding” when it is just “Angel Investment”
If that gets you confused, the business angel investors are individuals who invest their personal funds in potential startups. On the other hand, the VC is invested by the organizations that have other investors’ money that was raised by offering the investors a possibility to be a part in the funding that would be used to purchase the shares of a business.
A lot of people get confused with these two, where VC is basically a subset that is out of the investment group, and it is the toughest to obtain. Moreover, if you need to ask of your startup is a VC candidate; you are looking for funding in the wrong place.
2) Do not do anything in bulk
Take your time and make sure you are doing everything in the right way.
3) Make sure you research properly at first
Distinguish some venture capital funding for your startup that would happily fund the amount needed by you, in your region, at your stage of development, in your industry.
The VC firms have their own individual personalities, identities, and interests. Each has the favorite; about what amount they want to invest, at what stage, and where to fund. Many have websites mentioning all their preferences, where they expect people to know it.
If you want a right amount of information, the National Venture Capital Association website has much of it. You can get data regarding a listing of regional venture capital associations, book lists, statistics, advice, and obviously venture capital.
Searching the web to obtain local leads would also do a lot of help. Other than that, we advise you to search for reviews and comments from the other entrepreneurs regarding the company you are looking for.
All you need to do is to research and the Internet has a lot of resources.
4) Ignore companies preying on talented entrepreneurs by trading leads and databases
These associations have already been flooded by phone calls and unsolicited emails.
It does not function like that; it takes place one after the other taking one at a time. Moreover, on a similar point, these companies that ask you to pay them with the excuse that VCs will survey your report; notice that you have been cheating. The transactions chase the money, while the money does not follow the transactions.
5) Approach the selected and targeted VC firms one at a time and carefully
It is vital to be patient and look for the introductions at first by searching the details for those people who you know that might find them, along with any contacts in the businesses in which they have previously funded, their public speaking dates, business associations, and alumni relationships.
Do not be scared to suggest utilizing their form available on the website or just call their switchboards in their office. But, you need to make sure that this is kept as a last resort.
Moreover, you would have more chances to obtain the venture capital funding for your startup if you meet a standard profile, then you have a chance to meet with one of the firm’s partners or obtain an intro from someone they know.
6) Have an instant summary and an excellent tagline
Being with the conveyor sound, note all the main points down, but the special 60-second of the traditional conveyor sound is a lot. You must have the power to represent your company just within a single sentence or even two. And that is not all, this or these sentences have to be highly intriguing.
You can take ideas from where people had success with the “[some well-known company] of [some new business area].”
For instance, there was a company that called itself “the Netflix of kids’ toys,” and Alibaba was called “The Amazon.com of China.” And, this is what made the idea immediately clear. All in all, try to make a sentence that expresses your business and it should be just a sentence or max two sentences.
7) Design a one-page summary/quick video to be sent in the follow-up email
Yes, you’ll be doing it, once you have spoken with the VC or had an introduction made.
You need to understand that the real information exchange takes place in the email. The scheduled follow-up after the next three sentences is a summary, in the email.
And, with the technology and idea advanced in the world, a great video is taken more positively as compared to a summary. So, if you are very eager to have the venture capital funding for your startup, the video is a must.
Keep the video secure and not a public one with a simple password system just like the Vimeo or any other competitors.
The YouTube email-based support is uncertain since everyone has a lot of email addresses there these days, and the interference is uncertain. Make it seamless. LivePlan is a good one, and you can try it out.
8) When your summary video becomes a hit, work on the pitch next
In case your summary video becomes a hit (or the summary memo is a hit), you have to work on the pitch next.
There is a practice where, in a contract, you forward a follow-up summary or video and then you anxiously wait for being invited to pitch.
If you are confused, the pitch here is a presentation of many slides. A group of slides in a presentation is called a slide deck. Moreover, this is not what matters.
These are the chances where the VCs would meet you, hear your story, check you out and see what you have on your team.
You can learn more about the pitches by searching on the Internet, and you can see many examples. Also, it has to be kept in mind that your success or failure does not depend entirely on the pitch.
Everything depends on the VCs assessment of your future prospects, the credibility, and obviously, your story. This is what would get you the venture capital funding for your startup.
9) Build a business plan ready, right before the pitch and the summary
Next, you need to build a business plan that has to be ready right before, the pitch and the summary has been completed.
The pitch that you made was the movie while the business plan is the screenplay. Both have to connect and be right to the point.
Do not try making them too huge or formal as it would not last forever. It should also never be something older than four weeks.
Do not believe the myth that the investors do not read the plan. There are a few who do not, but there are many who do. And the truth is that the investors can reject your plan without reading it. Yes, but they would not provide the venture capital funding for your startup without reading the plan.
There isn’t any business out there that has gotten or gets money without undergoing austere examination and study first. And this part is called the “due diligence.” And, the business plan here is actual documentation for the due diligence. Even though, for the history, there are some quirks.
And yes, this does happen where a well-known successful entrepreneur who normally comes in the headlines, takes a new business plan to the VCs, they get the venture capital funding for their startup without the due diligence. VCs do battle for those opportunities. And regrettably, the stars, those personalities, would then inform the rest of us that investors don’t read plans.
10) Anticipate as the process would take a lot longer than you can think
Due diligence solely could take many months for the unending requests from the VCs for more and more documentation. Just know that when the VCs say yes they actually indicate maybe. And if they are saying maybe, then you need to look for another one since they just mean no.
So, if you have all the plans in place and are ready to move ahead, let these tips help you to make the right choice. But, do not expect to get the funding for sure, because the VCs who are providing you with the venture capital funding for your startup, still do what they wish even if you have given it your best.