Venture Capital Firms

How Can You Raise Capital for Your Venture?

You’re tired and being a CEO of a startup company in desperate need of cash, you are probably wondering how to raise the necessary capital needed for your venture to succeed. You have probably raised a few hundred thousand dollars in your own sweat equity and maybe you were lucky enough to even get into contact with an angel investor who invested another hundred thousand dollars in your company. That’s all good, and I am sure that your business plan is out of this world plus you have a great management team who can get the job done. You think that you have everything an investor would want to see.

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The thing is that you need some serious financing to raise capital. That is, you need to get a serious investor who has deep pockets and can invest large sums of money in your venture.

How do you get a venture capitalist to invest in your venture? Well, that does take quite a bit of work on your part to prepare a sound business plan with all the proper market analysis to win the investor over. For this you need to spend some of the “sweat equity” that you accumulated to get the right professionals who can provide the correct numbers and the realistic estimates that investors will be willing to look at. Then you need to sway these investors in your favor.

Think about forming a sales pitch for your company. As mentioned before, while earning your sweat equity in a marketing job, now use those skills to form your financing pitch. Your financing pitch should be both written and oral. The written version should be your teaser email and your executive summary; the oral version should be a carefully honed elevator pitch. Of course, building a good rapport with the prospective investor is also crucial. Remember, when you want funding from a venture capitalist, you are selling him some of the equity in your company. Plus, I mentioned before that venture capitalists have deep pockets, so here’s why that is. Unlike the angel investor who invested in your venture or your friends and family who have a limited amount of money they can give, venture capitalists have access to large funds that can reach over a billion dollars to invest. Why is this? Simple. Angel investors invest their own money in your venture and they budget a certain amount for their investments and budget other sums for other expenses. A venture capitalist, on the other hand, works for a venture capital firm which usually manages a fund. This means that a venture capitalist has a huge weight on his shoulders because he is not investing his own money. He has to answer to the vc firm that employs him for the investments he makes. Usually the funds that a venture capitalist makes investments from is either endowments, pension funds, or the private funds of wealthy families. The owners of the funds entrust the venture capitalists to make wise investments that allow the funds to grow.

What is a venture capitalist interested in when he wants to make an investment in your venture? The most important thing to a venture capitalist is the ROI or return of investment. One thing you need to know about investors in general is that, firstly they are opportunists and secondly, they are risk takers. Every investment is an opportunity to yield a high ROI, but it’s also a risk. The point is that although investors take risks, they are not random risks. The risks are calculated and are only taken after the due diligence has been done on the venture. If an investor feels that your venture has too low of ROI and a very high risk, he will be less likely to invest. On the other hand, if the ROI is high and the risk is low, you will more than likely get funded. You need to prove to the investor that your venture is the best opportunity for him and that it is well worth his investment. You need to make sure that you are prepared for the due diligence process, which can be rather nerve wrecking. A venture capitalist rarely makes decisions on his own. He has all the experts needed, such as market analysts and will study every aspect of your venture to determine whether it will provide enough ROI to be worth his investment. You will be asked a series of tough questions by both the investor and his partners. Furthermore, a venture capitalist will not just want his share in the company equity either. In most cases, a venture capitalist will want a controlling position in the company, most commonly a seat on your board of directors. The board of directors is the governing body of your company and should be evenly divided with investors and company executives.

Having the venture capitalist sitting on your board of directors is not all bad. In fact, it can benefit your company. Because a venture capitalist has such deep pockets, he has resources that can benefit your company and improve your business. This means that you can get the edge needed to join the big boys. You can do it! You just need to work for it and eventually you will come up with the right strategy.

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All the best, and good luck!

Amir

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