Venture Capital is a term for the fund that is raised by some group of wealthy investors, for investment in any small company or business or a start-up business. These small scale startup business firms have many chances of growth with huge potential, but they lack in terms of funds to proceed with their strategies.
There are also the chances of the downfall of the business, due to which the Venture Capital is also sometimes known by the name Risk Capital. There are a lot of questions on the mind of the person who is on the way to find good venture capital for the start of his new business firm.
Some of the common questions are like how to start with the search, where to find Venture Capital, what are the main points that will attract and oppose a good investment, and much more. So, with this discussion continued, you will be guided on how to find a good Venture Capital Investment for your firm.
There are various Venture Capitalists that focus on different stages of companies to be financed, before investing any amount in the business. The different financing stages that financiers look for before investing in any type of business are listed below.
- Seedling Stage: This is the stage where you have the idea in your mind, but you haven’t come up with any product or any company and you are looking for an investment to begin with. The Venture Capitalists mostly avoid this stage, as there is a huge amount of risk involved in this investment.
- Startup: This is the next stage of business that is also referred to as an early stage of the firm. At this stage, the business requires an investment or carrying out various research and development of their products.
- Series A (First Round): This is the stage next to the research and development of the product, where the firm requires an investment. Here, investment is required for the recruitment of the management for performing more research of the market to finalize and launch the product in the market.
- Series B (Second Round): This stage comes when the product is already launched in the market and is being sold, but the company is not able to turn out with a profitable sale.
- Mezzanine Financing: This stage is termed for the companies that have a well-furnished base of their products in the market in a particular segment, but they are looking for investment to further expand their well-settled business.
Therefore, now you are clear with the stages of financing and you can easily look up on your business for what stage you are at and what are the chances for getting an investment. This will also help you make up an idea on where to find Venture Capital for your business.
Prerequisites for Finding a Venture Capital
While the investment by venture capitalists has declined a lot since the huge investing years in the late of 1990s, still, if you have come up with an idea that is unique and solid to make a place in the market, you can find a good venture capital investment for your business. There are a few points to be kept in mind prior to your search for a good Venture Capitalist.
- Before you go on board with the search for venture capital, make sure that the investment firm becomes a part-owner, rather than being a creditor. Also, try to find an investor that is looking for a long-term investment to generate revenue.
- Most of the Virtual Capitalist forms are a group or a partnership of a few members investing their part of the fund. These types of investors usually take up a preferred stock of the company they are funded in and also, they demand to have a seat on the board of the directors of the company.
- The amount of return that the investors are looking for is also important. Well, there are a few investors that keep an eye on the return amount to be ten times the original amount they have invested, there are many that demand a three to five times return. Initial stage investors may look for a high return on investment because of the high risk involved, whereas late-stage investors may settle down for a three times return also.
What Investors look for before investing?
There are a few points that investors look for before investing in any business. Studying these points and evaluating yourself based on these will help you to get an answer to where to find Venture Capital, which is summarized below.
- Market for your idea: The first thing that investors look for the commercial viability of the product that you plan to manufacture. If there is a market for the product, then the next questions arise whether you are capable of manufacturing the product and marketing the cost involved in its manufacturing effectively to gain a profit.
- The size of the Market: The industry for your product must be large enough that you may get a good return for your products. Most of the investors will look for a five-year response of the market and the amount of competition that you are going to face there.
- Advantage: This is another main point that an investor will look for before investing. This point focuses on the idea of your product. While the main points to check are the uniqueness and the sustainability of the idea that you are presenting. Another point is that the idea is able to be copied easily or not.
- A Solid Team: Most of the investors emphasize on the point that you must have a solid team for the management and the marketing of the product that you are going to produce by their investment.
So, now you are ready to go out and modify your business proposals to get a good investment of venture capital in your business. Before deciding on the name of the investor to accept, thoroughly investigate their portfolios.