May 10, 2013
New businesses are often in need of capital to get their business started. Also many existing businesses that need to expand find it difficult to raise the needed cash for expansion. Venture capital financing is a proven source of funding for these cash-strapped businesses. Financing is typically provided to the business in return for a share in profits or a percent ownership of the company, or both.
There are many venture capital groups looking for the right companies to invest in. An Internet search can provide you with sources of venture capital financing. Most groups will show interest in the start-up, instead of waiting, but usually, you are the one to approach them. You can also find venture capital firms at fairs, seminars and panel discussions. Accountants, attorneys, business brokers and consultants also provide contacts with venture capital firms.
Most venture capitalists will require a presentation, including an informative business plan. Your business plan should be detailed and carefully put together in order to impress the investors and convince them to provide funding for your project. The plan should provide information about the company, the industry, the key personnel, the product or service, the target market and most importantly, the benefits to those who are investing.
Most venture capitalists focus mainly on the competence and character of your management team. They feel that an experienced, energetic management team can take a mediocre product and promote and market it successfully. They know that poor management can ruin even excellent products. They also look for a distinctive element in the marketing strategy. All this you have to address properly in your business plan so that the venture capitalists will see that you have a clear strategy for making your business highly lucrative.
Venture capitalists receive numerous proposals each year, so you need to make sure that you get their attention. They review several companies, and choose just a few to invest in based on factors several factors. That’s why your proposal should be well-prepare in order to demonstrate things like management credibility, growth potential and business integrity, and other important factors.
After going through your proposal and if a venture capitalist decides to work with you, they will provide an equity financing proposal, which details the amount of funds they will provide, along with many other details.
There will be negotiation of final financing agreement which generally represents a compromise between your company and the venture capitalist. The important elements contained in this compromise are ownership and control. The venture capital firm often wants a percentage of the company’s equity in exchange for their investment. The portion of equity varies, and depends upon the amount of funds provided, the profitability and worth of the company, and the anticipated return on investment.
Venture capitalists generally have interest in having control of the company. They want to participate in the decision making process that might affect the company and in any important decisions. Before you put your signature on any document indicating agreement, be sure you talk to your lawyer and have him review the documents.