Everything you need to know about venture capital

Established companies today often have great growth ideas, but with that comes a lack of funding to go from idea to practice, and for many entrepreneurs, venture capital provides critical financial support during the early growth phase.

In this article, we provide information on venture capital to help your business gain understanding of this investment fund.

Table of Contents

Definition

Venture capital is the financing that investors provide to startups and small businesses that are believed to have long-term growth potential. This capital is among the forms of private equity investment, known as a tactic of investing capital in private potential companies with the goal of increasing business value through financial and operational restructuring.

To balance risks, venture capitalists will try to interfere in the company’s operations and have certain powers. So capital is not always cash but can be provided in the form of technical or management expertise.

How Does It Work?

In a venture capital arrangement, a large portion of the ownership of a company is sold to a number of investors through independent limited partnerships created by venture capital firms. To make an investment, investors first need to identify target businesses (usually startups with potential, established businesses that want to improve, businesses on the verge of bankruptcy or other negative events…). Entrepreneurs will submit business plans to venture capital companies. If the company considers the business plan promising, they will conduct due diligence. After that, investors and businesses will grow the target business value, and investors will advise on strategy, financial management consulting, corporate governance. The final activity in the investment process is divestment, which is more about listing the target company on the stock market or IPO, transfering to a third party or dissolving the business.

How to get attention from venture capitalists?

Decide whether it is right for you

Deciding if the capital is the right fit for your company is a crucial one. Capitalists typically expect their returns to be 10 times higher in less than seven years, which is a high growth claim. If your business doesn’t have a clear strategy to achieve this goal then they won’t be able to invest in you. So keep in mind that there are plenty of other sources of capital out there such as angel investors, family offices, small business loans, lines of credit, grants, and so on.

Attract the attention of investors

Investors’ inboxes are often flooded with potential deals, so to attract them, your business needs a headline that impresses and captures their attention. Besides, you also need to be concise and clear but also attractive about your business strategies and plans.

Build momentum and set expectations

Any good story is built in the direction of a climax. So your business must always build momentum to keep investors excited. Each week, you should send an email update that includes a meaningful piece of news such as: new customers, feature releases, or press releases.

Besides, investors need to know exactly what you intend to do with the money you raise. Therefore, you need to set plans, deadlines and expectations for what to do and what to achieve in a specific time so that investors will continue to pour capital into your company.