What Is Venture Capital?
Venture capital is often a pool of funds managed by a firm or corporation, but it can also be capital from very wealthy individuals. VCs infuse large amounts of capital (i.e., upwards of tens of millions of dollars) into young businesses. In exchange for their large investments, they often demand large ownership stakes.
When Should I Reach Out to Venture Capitalists?
Venture capital funds invest in businesses with high potential returns. Generally, VCs make investments into companies that are past the minimum viable product stage and are looking to scale up. Unlike angel investments, market traction is almost always a requirement when seeking VC funding.
VCs can invest multiple times into your business during multiple rounds of the fundraising process. They often invest during early-stage Series A and B rounds, but they can also get onboard during later rounds.
How Do I Pitch to Venture Capitalists?
Venture capitalists are looking for companies on the verge of a large growth phase. Usually, they’re interested in turning a business into a billion-dollar giant. Therefore, VCs are most interested in hearing about revenue and/or user growth. You have to be able to demonstrate that your users, revenue, or both are growing and will continue to grow at a rate that requires a large investment to maintain.
When it comes to approaching VCs, networking is key. It’s rare to receive a check from an investor without having a relationship already in place or at least a mutual connection among your networks. To gain access into the VC network, attend VC events and connect with people associated with the VC industry.
How Do I Manage the Relationship After They Invest?
Any VC that invests in your company will likely take one or two seats on your board of directors. VCs can be very hands-on. Keep your board involved with regular updates and allow them to guide you in areas where you’re inexperienced. If a VC that has successfully helped scale a business similar to yours, the expertise can be extremely helpful. .
What About Potential Pitfalls?
As you grow your business, you may come to a stage where you need to raise large amounts of capital in order to maintain your current rate of growth. This means you’ll potentially have to exchange a significant piece of ownership to a VC fund. Potential loss of ownership is something to seriously consider.
By conducting research and considering your options, you can make an informed decision about whether pursuing venture capital might be a good fit for your business.