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Venture capital can be an excellent source of funding for businesses looking to expand. However, getting venture capital investment is no guarantee of success. Smart entrepreneurs start planning well in advance because they know venture capitalists (VCs) are going to ask a lot of questions and they better have the answers.
What Is Venture Capital?
Venture capital is money used for investment in startups and expansion stage businesses that involve high risk but offer the possibility of large profits. Venture capital funds make a profit by investing in several companies knowing that the few that are successful will repay investors for the ones that fail. Venture capitalists typically require more proof of concept and revenues before they invest than do angel investors. Besides money, venture capital investors can also help with business advice and finding qualified professionals to fill vital roles in the company.
How do Startups Get Venture Capital?
Ultimately, getting venture capital is about connections. VCs get dozens of unsolicited emails every week telling them about great companies they should invest it. Your email is just part of the noise.
If you’re going to get on a VC’s radar at all, you need to get the right introduction. Ideally you are introduced to a venture capitalist by a trusted colleague, or possibly the founder of one of their successful companies.
Once you get an introduction, you need to have a laser focused pitch. You’re talking to people who have heard hundreds, if not thousands of pitches over the years; yours has to stand out. This is not the time to “wing it.” If you’re going to get VC money, you need to know how to communicate why your business is a good investment and how to tailor your message for each venture capitalist.
What Do Venture Capital Investors Look for in Investment Choices?
Before you have even a chance of getting venture capital investment, you need to know what VCs want.
Venture Capital Investors want to see a game-changing product with a large market.
Never forget, just because you have the best thing out there, it doesn’t mean you’re going to get venture capital funding. Not only do you need to have a better product or service, you have to be able to explain in plain language why it’s a better product or service. This means you need to know what’s already on the market, what their limitations are and how you’re going to win the market.
Venture Capital Investors want to see that you have a winning team.
Not only do venture capitalists want to see that you have the right people in the right jobs, they want to see that your team works well together. Many companies fail not because they have an inferior product but because team members don’t communicate well or there are hidden agendas which can sabotage the business. Things change fast out there and VCs want reassurance that your team can seize opportunities and avoid common mistakes.
Venture Capital Investors want to see that your company is a good fit for their portfolio.
Venture capitalists have an investment philosophy that guides their investment choices. To get venture capital, you have to answer questions like … Is this VC investing based strictly on returns; in it for the money only? Are they investing strategically; trying to build a network of inter-related companies? Are they investing in specific segments of the economy; say bio-tech or green technologies?
Venture Capital Investors want to see how your company is going to make money.
It may seem obvious to you how your business is going to make a profit but just because you say, “We’re going to make money. I promise!” doesn’t mean VCs believe you. You have to know your numbers and be able to back them up with data. You have to explain exactly what you’re going to do with their money and how that will lead to success.
How Calkins Law Firm Helps Entrepreneurs Get Venture Capital
Venture Capitalists are savvy investors. They might give you money but they are going to ask a lot of questions first. Are you ready with answers? Do you even know what questions they are going to ask? The seasoned attorneys at Calkins Law Firm know what questions venture capital investors are going to ask and our attorneys will help you prepare your answers so you can show your business in the best light possible.
For entrepreneurs who have built a successful business and want to take it to the next level, venture capital funding can be the right move.