Banks are not the only solution for startups to get a loan. There are other ways to obtain financial backing. This is where venture capital investments prove to be useful.
Typically, there are various stages of VC financing, including the early stage VC funds. When a venture capitalist acquires shares and becomes a partner in a startup company, a VC investment is made.
How can you tell if venture capital is suitable for your company?
The best time to attract venture capitalists to invest in your company varies. While you may approach a VC partner equipped with only an idea, you will likely close a deal if you have an MVP (minimum viable product), a founding team, and customers.
If you have these concrete things, and your company can handle every aspect of it, venture capital could be the right source of funding for you.
The road to VC investment involves a few steps you need to prepare:
1. Have an Excellent Business Idea
Venture capital companies choose the types of companies to invest in. Often, these companies are highly scalable, and in the early stage with a lot of potentials to go through the process of IPO, dominate a market, and develop and expand fast. If you want money from venture capital, make sure your business qualifies well.
2. Present your Early-Stage Pitch Deck
One of the first marketing collaterals you need to offer a venture capital firm is a pitch deck. It can be a cold email that you send to a VC firm, and it can also be through a warm introduction from someone in your network. The pitch for early-stage VC funds is usually based on ideas and concepts, while the later stage is often about traffic, engagement, revenue, or key performance indicators.
3. Meet up with VCs
You need to meet with venture capitalists to guarantee financial support for your company. Using your network or cold-emailing can help you score a meeting with VCs. Consider creating a list of venture capitalists that is suitable for your company. You may get referrals from your connections to secure a meeting with VCs. You may target specific partners at every VC firm.
4. Do your own Audit or Investigation
If the first meeting is successful, there will be more meetings with the VCs. It also means a lot of due diligence processes before they offer you a deal. Due diligence comprises analyzing the target market, financial viability, product, founding team, earnings power, etc., of the firm.
Due diligence is crucial for a VC company regardless of how much you think you have a done deal. They will verify the facts and evaluate both assets and potential risks to find out if you meet the requirements.
5. The Layout of the Details
Once the venture capitalist decides to fund your business, you will receive a terms sheet containing the proposed deal. Both parties need to agree on what is included in the terms sheet before finalizing it, and funding is a done deal.
These are the typical processes to a venture capital investment and secure solid support from a financial channel. Remain consistent and persistent, particularly in the early-stage VC funds.
The way to funding is not always in a straight line, so it is best to come prepared. VCs do not give funds and then walk away. They make sure your business is one of the best decisions they make.