For the entrepreneur looking for finance for their fledgling business there are a lot of different options available, from self-funding, and angel investments to grants and even venture capital funding.
The financial landscape can be quite confusing for the brand new business owner but understanding what how VC investors operate and provide VC investments is fairly straight forward. So this begs the question whether venture capital funding is suitable for your own business?
Venture capital firms are portfolio companies that invest in a number of different businesses at any given time. Some venture capital firms will work within a particular sector or business ecosystem, whilst others, will have a more diverse portfolio and provide investment capital to a many different business types.
For example, you might find that a venture capital firm will provide fundraising for firms that work in the healthcare, crypto, robotics, fintech or high-growth technology companies. There are venture capital companies that have been created specifically to target emerging companies that target these sectors.
You can even find venture capital firms that specialize in the people they invest in, so for example there are women-led venture capital companies. So whether you're a tech-business in Silicon Valley, near San Francisco or an emerging company in Mumbai, if your proposition has great growth potential you'll find a venture capital firm that is interested in your business.
Venture capitalists can invest anywhere up to the billions, expecting a return of up to 30% over a five to ten year period. At the earliest stage of investment, this funding is called seed capital, covering initial marketing, developing and manufacturing expenses.
After several years, even if the business has not yet turned a profit, the company can seek working capital to further expand its line of products, operations, inventories and technologies. When the company or firm has matured, bridge financing allows the company to go public and investors can restructure stockholder positions and possibly leave their agreement (also known as an “exit strategy”).
When one company provides the capital investment to a different company, this is known as corporate venture.
To take your business to the next level with VC company you can expect a lot of meetings between management teams and individuals like the CFO and general partners.
When it comes to finding investment for your early-stage start-up business, where do you begin? Although many entrepreneurs might consider looking for venture capital investment, often these kind of investors are looking for a business with a relatively high valuation, that has made inroads and needs investment to take the business to the next level.
For entrepreneurs with a start-up or small business that are looking for early-stage investment then VC investors might not be the right fit, instead private investors may be more interested in the business proposition.
The reason for this is fairly straight forward. The venture capitalist investors normally look for established businesses that are looking to grow larger, perhaps to help it reach the point of the Initial Private Offering (IPO). Once a company has reached IPO then you can expect larger investors such as pension funds to start investing in an organization.
On the other hand, in comparison, private investors are typically less risk adverse and look for big returns on their investments. In some cases, you might find a VC firm backing an individual if they have a solid track record of entrepreneurship, but this isn't as common as them making VC funding investments into larger, more established organizations.
With potentially high returns, the risk often increases, and no more so than with start-up businesses. This often does not deter the angel investor, but venture capital investors like those found on Wall Street are less enthused by these kinds of prospects.
To get angel investment for a new business you will need to ensure that your business plan is comprehensive, as the investors will need to do their due diligence before they invest in the business prospect.
Members of the Angel Investment Network can connect with potential angel investors and generate venture capital for their business.
Private equity investors are looking for start-up businesses that they can invest in. So if you have a new venture that you are looking to get off the ground, then by signing up to the Angel Investment network you can find a partner who can help secure your future and provide the investment needed to take your idea or early-stage company to the next level.