An entrepreneur’s journey begins with an idea. When it begins and takes off the ground, it requires the capital to fuel the growth. Some of them have their own capital while some of them opt in for raising funds for their business. Raising fund or venture capital for a startup is not an easy task, it requires planning, creating convincing business model to introduce it before the financiers.
What is Venture Capital Funding?
Wikipedia says that the Venture capital (VC) is a type of private equity. It’s a form of financing that is provided by firms or funds to small, early-stage, emerging startups that are deemed to have high growth potential, or which have demonstrated high growth (in terms of number of employees, annual revenue, or both).
Venture capital firms or funds would invest in those early-stage businesses in exchange for equity. Equity is an ownership stake in the businesses venture capitalists invest in. Venture capitalists take on the risk of financing early stage startups in the hopes that some of the firms they support will become successful in future. In this process, the VC firms will get multiple times return on their investment.
Venture capital funding is not meant to be a long term funding. The main objective for such funding is to insert investment in the balance sheet of a company and also infrastructure till an expected size and market credibility is attained. Then, the company can be sold to a larger corporation and public-equity markets can get into the action and generate liquidity.
Basically, a venture capitalist would buy a stake in an entrepreneurial idea and nurture it for a short duration ending in an exit with the aid of an investment banker. Putting things simply, the big challenge here remains to progressively earn a superior return on investments in what are inherently risky business ventures.
Points to Factor in Prior to Raising Venture Capital Funding:
Check out some questions below that every startup founder should ask themselves before opting in for raising venture capital funding.
a) What is the current size of the organization?
b) Why should I consider venture capital funding?
c) Is it the right time for me to raise venture capital funding?
d) Should I avoid or actually go for venture capital funding?
What’s the right way to run a venture capital fundraising process?
You need to get a better understanding of the entire process. You need to first interact with various banks and venture capital funding firms. Make sure you have thoroughly analysed the capital currently existing in your organization. It is also recommended to join a startup incubation programme. It will help you develop and consolidate various steps towards attaining business clarity. You will be able to introduce your business, objectives, purpose, and value of your business in a systematic way to the venture capitalists. Integrated presentation, which is also known as a pitch deck, is very important to raise funds. By joining an incubator programme, you will be able to form the best and most effective pitch deck which in-turn will engage potential investors and capitalists to look more into your product.