Venture Capital (VC) is a type of financing that provides funds to startups and small businesses with long-term growth potential. VC generally comes from venture capital firms, investment banks, well-off investors and any other financial institutions. They are a form of private equity and provide mentorship. VC’s are for startups and businesses with high potential to reach broad markets and need a considerable amount of capital for making their business plans a reality.
VC funds are investment funds managed professionally. VC funds are given based on the company’s assets, stage of development and size. Each VC has its preferred sectors, funding amount and stage of startups. They are said to have high-risk and high-return profiles. They are dedicated to funding new ventures and are regulated by the Securities and Exchange Board of India (SEBI).
1. Make Sure The Startup Is Ready For Venture Capital
For obtaining venture capital funds, startups need to attain specific criteria. The venture capital firms invest in startups and business, which are innovation and can grow. They usually stay away from startups who have not perfected their technologies. They focus on highly-scalable innovative business models. They invest in startups across all sectors who use technology as an enabler or differentiator and are backed by credible terms.
Before going for venture capital, the entrepreneurs need to ensure that their startup meets the criteria that would attract venture capital funds. The venture capitalist invests in startups based on innovative new or improved products, services or processes. So, the entrepreneurs need to make sure that the startups are ready and capable of attracting venture capital funds or else they could spend time and resources only to find out that VC firms are not interested.
2. Build Network And Research Before Obtaining Venture Capital
Building a network in the business field/sector of an entrepreneur is essential not only for the business’s growth but also for obtaining investments. In today’s technology-driven world, it is necessary to build a broad network of useful connections, leading to the right persons’ introduction to expand the business. A recommendation from a few reputable individuals will help the startup to attract VC. Creating a comprehensive network will increase the chances of meeting the right persons to invest in the startup and directly reach the VC.
Research by an entrepreneur of the VC options available for his business is also equally important. An entrepreneur needs to invest some time to understand the VC market. Some VC’s prefer to invest in the early stages, while some invest at the expansion stage, some like to invest in a specific sector or product.
Thus, an entrepreneur needs to research the VC firms suitable for his startup or business funding. VC’s also provide mentorship to startups. Therefore, an entrepreneur also needs to study the VC’s, which have ample knowledge in the same business field as they will be in a better position to guide him for obtaining higher returns.
3. Target The Right Venture Capital Firms
There are many VC options available to approach an entrepreneur. It can be confusing to choose a VC firm for funding for the startup or business. Before deciding on approaching a VC, an entrepreneur needs to analyse if the VC firm has invested before in the same market of his startup and will the VC meet the size of the fund requirement. An entrepreneur needs to consider if the VC will invest at the stage where his business is at currently.
VC firms invest at the stage where the startup’s products or services are launched in the market. An entrepreneur needs to target the VC, who will be interested in investing in his startup. He can determine the VC’s interest by looking into the eligibility criteria of investment of the VC. If the startup meets the eligibility criteria, there are high chances of obtaining funds from the VC.
While choosing a VC, an entrepreneur also needs to analyse the VC firm’s abilities. An entrepreneur needs to check the conditions of investment, success rate, credibility and terms of existing so that there will be good compatibility between the VC and the startup.
4. Strike The Right Venture Capital Deal
When a VC invests in a business, they take part in the decision making of that business. Thus, it becomes essential to strike the right VC deal. For striking a good deal with a VC firm, the entrepreneur should study the market and possess the knowledge of the right ways of attracting investors into the deal. An entrepreneur should make a list of suitable VC firms and eliminate those who do not meet the requirements.
An entrepreneur should use unique aspects of his business for generating the interests of VC. For convincing the VC’s to invest in a startup, an entrepreneur needs to convince them about the business potential, growth plans and business goals and the estimated time to earn profits and returns.
An entrepreneur’s presentations given to the VC’s need to be clear, well structured and supported by necessary data and documents. He must make an excellent business pitch. He must make the first pitch to the investor least likely to invest, learn from the feedback, improvise it, and approach the most likely investor.
5. Exercise Caution
An entrepreneur needs to excise proper caution while striking a deal with a VC firm as they will participate in the business’s board. Good compatibility and understanding regarding the business’s future and plans are necessary before finalising the deal as a bad deal can result in trouble to the startup. Thus, an entrepreneur needs to take up various steps such as market surveys and background checks before closing the deal and receiving the VC funds.
An entrepreneur also needs to take caution while presenting the information of his startup for obtaining the VC. If the deal is not finalised, then the chances of spreading the entrepreneur’s information and ideas are possible, which can be harmful to his business’s growth. An entrepreneur needs to be cautious enough to safeguard sensitive information concerning his startup.
The process of raising venture capital is tricky, but choosing the right investment partner can grow his business in the market. Most startups require capital for growing their business. By carefully selecting the right VC, the chances of securing the capital to expand the business and achieve its goals will increase
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