With any startup approaching growth, it’s essential to consider venture capital. Venture capital is a form of private equity and a type of financing that is typically used for startup and small businesses that are believed to have long-term growth potential. Unlike typical investors who write checks for under 100,000, venture capitalists can write multi-million dollar checks. VC’s also support at many later stages, from growth to seed.
When looking at VC’s, it’s crucial to get an objective view of what exactly you’re selling. For most founders, it’s common to think of your business as a perfect idea. Most ideas are worthy of backing up to most investors, but venture investors require more of a guaranteed return. When venture capitalist invests, they are looking to put in millions of dollars into an idea. When presenting your idea, even though you know it may be a worthwhile one, you need to sell the idea. Take the time to write down the pros and cons realistically so that you can predict possible outcomes.
Before you get into asking venture capitalists for support, it’s essential to know precisely how they make their money. Venture funds have both limited partners and general partners. General partners manage the money, while limited partners contribute money and become passive investors. General partners in VC funds make money a percent of the returns and a percent of the fund size. When you look at the actual capital, VC’s can only invest money in proportion to their total assets. A fund that is worth 200 million dollars wouldn’t be investing 100 million dollars. Make sure you identify the ratio between the money they make and the money they can spend.
Venture Capitalists want to get to know you as well as your idea. Think of the investment process like dating a stranger. When you go on a date, you take your time, get to know the person, and see if they are worth your time. The same applies to the relationship between a startup and investors. Investors want to get to know you and make sure you’re genuine. They need to know the person behind the idea. If you don’t click with the investors, the chance of them investing in your idea is incredibly low.
As you move forward in your startup, the venture capitalist avenue is a great way to go. An investment from a VC can make or break a new or small business. When all else fails, make sure you are honest about your intentions, your ideas, and, most importantly, yourself.