How Venture Capital Works

What is Venture Capital?

The venture capital process seems to be a mystery to the majority of entrepreneurs that we speak with. Here’s a quick overview for entrepreneurs (and any one interested) that outlines the venture capital process and how vc funds are raised these days for startup companies and small businesses.

So what is Venture capital?

So you’re new to the whole process of raising capital for your business. Or maybe you just need to brush up on how venture capital works. Venture capital is a style of financing that startups and small businesses use to fund the growth of their companies. A venture capitalist (VC) provides funding, typically in excess of $1 million, in exchange for a stake of equity in the company that was funded.

The VC hopes to see a large return on their investment within a short period of time (usually 3-5 years). Obviously, the sooner the return comes, the better. Unfortunately, many of these investments do not post impressive returns within this time period and the majority actually fail all together.

In order to withstand such losses, every venture capital firm has strict criteria for investment. These firms also diversify their investments across several startups at any given time.

Where can I find an investor?

So you have paying customers and you’ve put together a solid strategy for rapid expansion. Now it’s time to find somebody who is willing to fund your plan. Where do you look?

The Go BIG Network is a great place to find a wide range of investors who may be interested in funding your deal.

The site allows you to perform a quick search for investors based on a number of factors including geographic location and industry focus. You can find Angel investors, VCs, and even investment bankers. There are plenty of opportunities out there no matter what category and stage of funding your business falls under.

What’s next?

Once you have searched and found an investor that looks like a good fit for your business, it’s time to do a little homework. You’ll want to find out the geographic and industry focus as well as the current businesses in the investor’s portfolio. Would your company be a good fit? Don’t waste time contacting an investor if you can’t envision your company fitting into their existing portfolio.

The caution here is as much for the sake of the investor as it is for you. As an entrepreneur you’re interested in landing funding, but you also want an investor that has brain power and can help you grow your company with help from their industry contacts and expertise.

If you find a good fit, the next step is making contact. Whether you choose email, phone, or some creative method, be concise! Investors are already slammed with countless business plans each day. Don’t contribute to the pile on their desk. Finally, try to make contact through a referral whenever possible. You’ll already have the investor’s attention if you’ve been recommended by a mutual friend.