The thought of someone trusting an idea or innovation enough to invest a huge sum of money is certain to give any first-time entrepreneur the thrills. Sadly, venture capital investment is not for all businesses. If the idea of your business getting sold or going public eventually sits well with you, or you require a large sum of money to execute your business idea; you can consider venture capital investment.
Here are a few tips on getting started with raising venture capital:
- Check if your business is VC-backable
Every entrepreneur wants to believe that their ideas are unique and investment- worthy. However, VC investment might not be the best option for every type of business. This is because VC investors would rather invest in startups that have a lean business model, easy to scale and difficult to replicate. VC’s also seek investment opportunities that give them up to 10 times of their initial investment cost in returns. If your business idea is targeting a niche market, it is best to seek angel investors who are interested in your type of business.
Venture Capitalists are actively involved in the decision-making process and operations of your startup because they need to protect the funds they have invested into it. If you are the type of entrepreneur that hates answering to someone else, you should consider another source of funding.
On the other hand, VC investors always think big so they will push your idea to grow faster than normal. This could be a great thing if it resonates with your dreams for the business.
- Research target VC investment companies
After evaluating your business and deciding that it is VC-backable, the next step is to decide how much investment funding your business needs and which VC investment companies to approach. Important factors to consider include your industry sector, investment stage, target investment funding, proximity and potential investors.
You should also find out as much as you can about your target investors. Conduct adequate research on what investments the investors are currently making, the value of their deal size, what their fund cycle is and how many startups they invest in every year.
This will help ensure that you are looking in the right place. Some VC companies keep on talking to founders even after they have deployed all their capital and are trying to raise new funds. Doing proper research guarantees you that whoever you are talking to, really has the funds to give.
- Build traction
VC investment companies need assurance that the startup they are investing in has a high chance to succeed. This is why it is important for you start small first before seeking investment funding. The only way to convince them that your business is worth investing in, is by building a traction. Try to get your team in order, this will show them that you have the right people to help you actualize your dream. If you have any feedback from clients, it would be great to compile them in an engaging way. Getting your startup valuated is also another way to convince VCs that your business is viable.
- Get your paperwork in order
Every business idea must have a detailed business plan and a pitch deck. These are the best ways to tell your story to target investors. Your business plan tells the investor how your business improves the life of the consumers, how far you’ve come and how much you still aim to achieve. The business plan should contain important facts like your SWOT analysis, business model, investment strategies, competitive analysis and market information.
If you started your business with a co-founder, then work on your capitalization table. Before the VC investors come in, spell out the details of your company’s stock; let them know how much stock belongs to whom.
Other documents you should have ready include financials, tax papers and licenses that are relevant to your business.
You need to be mentally prepared for the process of raising venture capital. It does not just happen overnight, most times; you will need to attend a series of meetings before closing a deal. Additionally, VCs have the tendency to be overbearing especially when it comes to how much equity they want from you. Learn to stand your ground and be confident without being rude. Practicing your presentation in front of people who are familiar with the investment process will also help to build your confidence and prepare you for likely questions. Finally, be patient and resilient because raising venture capital is no easy feat!
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