When you make the decision to turn your passion or idea into reality. The works begin in getting the business off the ground. In order to do that. You need money. No matter how great your idea or product is, without money it is not going anywhere. You need money for a storefront (if applicable), marketing, employees, prototypes and more. You can go and ask your parents for a loan, or get a loan from a bank. But one of the most successful ways to get a business off the ground is through venture capital.
Finding Venture Capital
Venture capitalists are individuals and businesses that specialize in putting money into investments. They make money when you make money off your idea. Venture capitalists got companies like Apple off the ground and those involved made a fortune off it.
Venture capitalists are not going to just give you money. They are going to analyze your idea and put it through a deep filter to find out if it is going to be successful. Or if it is going to fail. They don’t want to invest $500,000 in your idea only to have it fail in a year. They want to invest $500,000 in your idea and have a return-on-investment that gives them $50,000,000 or more.
In order to get venture capital, you need to meet with venture capitalists and pitch your idea. Sometimes it will go well, sometimes it will fail. But like an actor auditioning for a part, you keep at it until you find success.
Venture Capital Vs Angel Investment
First things first, we should delve into the difference between these two types of investors.
- Angel Investor: This is a wealthy person who provides capital for a start-up in exchange for equity in the business. Some famous angel investors are people like Jeff Clavier, who sometimes gives up to $6 million to a startup because he likes their idea. Over the past 10 years, he has funded 150 startups.
- Venture Capitalists: This is an investor who provides capital to startup ventures that want to expand but doesn’t have access to certain markets. A venture capitalist will invest in companies because they are expecting a huge return on their investment.
Now that we know the difference between these two types of investors, lets look at how you can find venture capital.
Questions to Ask Yourself
Before you dive into finding a venture capitalist, you need to ask yourself some questions so that your chances of getting funding will increase.
- You may love your product, but is there a market for it? A venture capitalist is going to want some sort of viability on the market for your idea. If the market does exist, can you make the product or service in a cost-effective way?
- A venture capitalist will want a market that is robust and able to generate millions for all competitors. If there is a market that is great, but it needs to be a big market to get the venture capitalist interested.
- Your idea or product needs to have a competitive advantage over competitors. Is your idea going to be unique enough that it can sustain profits and not be copied easily?
- Lastly, you need to have a very good team behind you when you are looking for venture capital. A venture capitalist firm will want to see that you have a team with business experience, who can handle the challenges that are ahead. Unless you have a great idea like Facebook, no experience is not going to cut it.
Venture Capital Tips
When you decide to dive into the world of getting venture capital, follow these tips to maximize your chance of success.
- Applying for venture capital is not the same as applying for a job. When you apply for a job, you send out a bunch of resumes and hope one of them gets a bite. You can’t do that with venture capitalists. Do not send out mass e-mail templates in a shotgun approach. No investor is going to read a pitch when he or she thinks that it has been sent out in bulk to many different investors. Avoid this approach at all costs.
- You need to do your research first when you are looking for venture capitalists. You want to make sure you get someone who is aligned with what you are planning on creating as a product or service. We mentioned Jeff Clavier earlier. He is an angel investor but if you go to him with an idea for a new type of dog food, he isn’t going to jump on board. He prefers to invest in telecommunications and e-commerce ideas. Each venture capital firm has its own types of interests. They have various preferences when it comes to what they invest in, how much they invest and the stage of the company they invest in. Some prefer to invest after a prototype is made, while others want to invest before the prototype is made. A great place to check out is the National Venture Capital Association website. This website provides everything you need to know including regional venture capital associations, searches based on the type of industry or location and even reviews from entrepreneurs about the investors they worked with.
- Some venture capitalists will offer to sell you databases and leads. These are venture capitalists you should avoid because they are taking your money and telling you they will help you find someone to invest. This will not happen. Always remember that deals will chase the money, the money will never chase the deal.
- Patience is the key to finding a venture capital company. Never pressure a venture capitalist when you find one. When they are ready, they will get in touch with you.
- In order to find a venture capital company, one of the best things you can do is to speak with people you are connected with any venture capital companies they may already know. Find out about the alumni relationships of the venture capitalists, what business associations they belong to and even when they are speaking at conferences and elsewhere. Submitting through a website form should be your very last resort when you have no other way to reach them.
- The inbox of an investor already has a bunch of e-mails in it from potential start-ups. If you are going to e-mail a venture capitalist, then you need to grab their attention. This can be through a key client that gives you name recognition, or maybe an award your company has won. Anything to set you apart from everyone else.
The Funding Stages
Before you decide to find venture capitalists, you should also understand how the funding stages work. Knowing what the funding stages are. You will be able to know the best time to start finding venture capitalists to fund your business.
- Seed: In this stage, you have an idea, but you don’t have your company started yet and you have not made your product yet. You may be looking for seed capital, but you should understand those venture capitalists typically do not fund in this stage.
- Start-Up: This is the stage where companies need funding for things like research and the development of the product. Typically, venture capitalists don’t fund in this stage.
- First Round (Series A): In this stage, you are looking for venture capital for recruiting management individuals, doing further market research and finalizing your product or your service to get it out on the market.
- Second Round (Series B): At this point, the company is selling a product but not earning a profit. The funding the company will be looking for is for working capital.
- Mezzanine Financing: This is also called late-stage financing. This is to help expand the company so it can sell its product and its services at a profit.
Finding a venture capital firm can be tough, but if you do your due diligence and assess potential investors. You can find the right company or person for your needs. This creates a beneficial relationship for you both that will allow you to both see huge profits and success in the future.