How to Get Venture Capital Financing
What is venture capital financing? How would you differentiate between venture capital vs private equity.
Suppose you have a business that requires funding, how can you decide whether venture capital or other forms of investments is good for your business?
Well, before you make an investment choice decision, you need to know the difference between each type of investment opportunity available in the market.
Venture capital financing has four main players: you the entrepreneur who needs funding, investors who want high returns for their investments, investment bankers who need businesses to sell, and the venture capitalists who make money by creating a market for the other three.
Most venture capital firms protect their investments from risk by investing jointly with other firms. They prefer to have two or three groups involved in most stages of funding. Such relationships provide portfolio diversification which is simply defined as the ability to invest in more deals, per each invested capital.
This also minimizes the workload of the venture capital partners by getting other firms involved in assessment of the risks in your business, during the due diligence period and in the management of the deal. You need to know which investors to reach out to by doing research and gathering information on the investor's target investment, and asking yourself whether you need to raise equity or convertible debt in your business without wasting time on known dead-ends.
Always look for the best funding for your company's stage of growth, with industry expertise and a proven team of investors that have the experience in your chosen industry.
Get Venture Capital Financing for Your Business or Project
Now you can get up to 100% venture capital financing for your business or project. Ready, willing, and ready to offer venture capital funding for viable, underwritten projects and businesses worldwide.
Funding range: US$1 million minimum (No maximum)
Is venture capital financing right for your business?
If your business is a startup or early-stage, what would most interest a venture capital is;
- Is the business in the right industry?
- Does your business have long-term high growth or show proof of high growth potential?
- Are you ready to give out equity in your business?
How venture capital financing works
Venture capital funding usually comes from institutional investors and high net worth individuals, pooled together by dedicated investment firms. The funds are used to finance a new, growing, or troubled business, in exchange for an equity stake in the business rather than given out as a loan. This they do by, taking into account the risks involved with regards to the company's future profits and cash flow.
Most venture capital deals involves creation and selling of equity stakes of a business to a few interested equity investors through independent limited partnerships, established by the venture capital firms. Some of these partnerships usually consists of a group of enterprises with similar operations. Venture capital tends to focus on new emerging companies seeking substantial investment funds for the first time.
Venture capital financing is simply put funding provided to businesses and entrepreneurs at different stages of their growth. A large percentage of venture capital investment funds is usually used for building business growth infrastructure such as manufacturing, marketing, sales and provision of fixed assets and working capital. The money is not always long-term with the basics being to invest in a business's balance sheet and infrastructure until it grows in its market valuation, so that it can be sold to a corporation or listed in institutional public-equity markets to provide liquidity.
The venture capitalist essentially buys a stake in an entrepreneur’s idea or business, nurtures it, and then exits after a short period of time with the help of an investment banker. An aspiring entrepreneur with an idea or a new technology but with few or no hard assets against which to secure debt in the current information age, often has no other financial lending institution to turn to for funding. This is where a venture capital investment or funding comes in handy. It is the most suitable funding option for companies and businesses with large up-front capital requirements, but with no cheaper financing alternatives available in the market.
How to apply for venture capital funding
Venture capital firms tend to invest large amounts of funds in a few businesses after undertaking a detailed background research. Before approaching a venture capital for funding, you need to;
- Prepare and submit a business plan which should include; An executive summary of your business proposal, description of the opportunity, market size and potential, a review on the existing and expected competition, detailed financial projections and details of the company's management.
- Information review, analysis and one-on -one meeting Once the venture capital has undertaken detailed analysis done of your business plan and they find your project meeting their preferences, you will be invited for a one-to-one meeting to discuss the proposal in detail. The outcome of the meeting will decide whether or not the process will move forward to the due diligence stage.
- Due diligence process After the meeting, your business proposal will be moved to the due diligence phase which involves, solving of questions relating to customer references, your product and business strategy evaluations, and management interviews.
- Agreement signing and funding If the due diligence process is successful, you will be offered a term sheet, which is simply a non-binding document outlining the basic terms and conditions of the investment you are agreeing to. The term sheet is usually negotiable and must be agreed upon by all parties involved in the negotiations, after which funds are made available to you upon completion of legal documents and due diligence.
Types of venture capital financing
Venture capital funding are for early stage, expansion, and business acquisition/buyout. The funding process is normally complete after six financing stages corresponding to the duration of your business's growth.
- SEED MONEY; This is a low level funding for testing and improving on a new idea.
- START-UP; This is given to new businesses seeking funds for marketing and product development expenses.
- FIRST-ROUND; This is provided for manufacturing processes and early sales.
- SECOND-ROUND; This is for operational costs allocated for early stage businesses selling products, but with no profit.
- THIRD-ROUND; This is funds for expansion of a new high growth company.
- FOURTH-ROUND; This is the final type of financing mainly for initiating a buyout or initial public offering (IPO) process.
Advantages of venture capital financing
- BUSINESS BENEFITS: They bring a lot of expertise and wealth to the business.
- MORE FUNDS AVAILABLE: They do offer a high amount of equity finance.
- FLEXIBLE OR NO FUNDS REPAYMENT: Your business does not have to repay the invested funds.
- VALUABLE MARKET INFORMATION: They do provide valuable market information, resources, and technical assistance in addition to capital, to make a company successful.
Disadvantages of venture capital financing
- Loss of business autonomy You stand to lose the autonomy and control of your business as the investors become part owners.
- Lengthy process The negotiation process is long and quite complicated.
- Complex funding terms The funding is uncertain in form
- No short-term benefits Only long term benefits can be realized from such type of funding.
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