Startups and small businesses are known for their hustle and hardworking mentality. However, you can’t begin the product development process with hard work alone. Cashflow can make or break a business’s growth. That’s why it pays to have an investor who can offer time, advice, and funding for your company. According to Investopedia, Venture Capital Funds are “pooled investment funds that manage the money of investors who seek private equity stakes in startups and small- to medium-sized enterprises with strong growth potential”. Simply put, experienced investors pool their money together. Once they collect investment funds, they utilize them to partner with small businesses and startups like yours.
Venture Capitalization is like gambling in a sense. Benefactors want to partner with companies who have high profit potential, even if there’s high risk associated. They want to grow your revenue, and, in turn, grow their own. Now the question is, what’s the catch? How do you win big and bring an investor on board? This Flying Pig Designs blog has the answers for you.
The Risky Business Behind Venture Capital Funding
With big rewards – like strong partnership, invaluable advice, and dependable funding – comes risks. In fact, selecting the right venture capitalist is the riskiest part of the process. This is because venture capitalists (or VCs for short) want to see returns on their investment, but as a business owner, you want more than that. To grow a passionate team and build a sustainable company, you need a partner who not only offers financial investment but emotional and professional investment as well.
Reputation and Performance History
Ultimately, entrepreneurs look for venture capital funding because they have specific goals to achieve and need assistance. The trouble comes when the investors you seek don’t have the skills or experience necessary to help you succeed.
When you’re looking for a venture capitalist partner, it is important to do some digging. Find out more about your potential investor’s previous work and look for feedback from satisfied (or unsatisfied) clients!
Vulnerability and Company Culture
When you invite a financial stakeholder into your company, you’re bringing them into your family – that’s a big deal. Your investor will work closely with your team, so it’s important to assess how they will connect with your staff. Gauge how well your values and business needs align to help create a smooth working relationship and profitable results.
Personal Investment and Potential Failure
Remember when I mentioned that venture capitalization is like gambling? Believe it or not, that risk isn’t just on the investor. VC’s have a variety of business relationships, and thus, they will probably make profits somewhere even if you fail. On the other hand, if your partner can’t complete your objectives, there’s a problem. As a result, your business fails and your reputation gets burned. Be diligent when interviewing and researching your investors. They aren’t the only ones who need to see the benefits of the partnership, after all.
Benefits of a Venture Capitalist Partnership
While there’s risks associated with venture capital funding, the benefits can be just as plentiful. You just need to choose your partner wisely. The right choice could spell success for your profit margins and overall brand recognition. Excited to hear more? Next, well talk about the perks that come with a venture capital partnership.
Areas of Expertise
Google is a nice resource for answering unsolved questions, but an industry expert’s point of view is priceless. When you meet a knowledgeable investor, you’ll know it. They’ve been around the block when it comes to their niche. Because of that, they’ve learned from mistakes you haven’t made yet. They’ll be able to save you time, answer questions, and connect you with others in the field. Find a venture capitalist who has the experience you lack in your target industries. It’s the key to gaining valuable insight and forming crucial business relationships.
Upfront Funding and Lines of Credit
The biggest, most obvious benefit to working with a venture capital investor is that they have, you guessed it, capital. Yes, working with prospective stakeholders has risks, but access to secure funds makes the risk worthwhile for most. Depending on your budget, goals, and negotiating skills, you can set up a contract that satisfies all parties. You and your investor can even consider options like loans, revolving lines of credit, and royalties to make sure everyone’s best interest is top of mind.
The Art of Approaching Potential Partners
Finding a venture capital investor isn’t as easy as going on Shark Tank and selling a product to overly critical millionaires. This process requires a certain level of tact and professionalism, and there are multiple ways to obtain funding.
Often, your best option is asking a financial professional, like a bank, CPA, financial advisor, or lawyer for investor referrals. They can assess your risk to the investors as well as your financial strength, saving everyone’s time and reputation. Otherwise, private equity conferences and industry events are good ways to network with entrepreneurs and investors.
Locating an expert is the first step to gaining capital. Next, you’ll need to convince them that they should work with you. Before you embark on your next venture capital funding experience, here’s a few quick tips to follow.
Venture Capital Funding Do’s and Don’ts
- Don’t engage in small talk – Investors are busy, and you aren’t the only entrepreneur trying to talk to them. Focus on your main objectives.
- Show and tell why your business is unique – You want a professional to put money into your business. In turn, you have to inspire, intrigue, and impress them. Give them a reason to say yes.
- Be concise – Explain key details, but don’t ramble or shift topics. You don’t want to lose interest before you’ve gotten through your pitch.
- Keep communication lines open – Your potential investor should be able to contact you without substantial delay. It should be easy to have a conversation. Speak clearly and be attentive.
- Don’t be secretive – If you expect a venture capitalist to trust you with their money, they must trust your intentions. Be open about struggles, earnings, other investors, and goals for your business.
- Specify short and long-term goals – Mention the direction you want to go with your company. Explain what you want to use capital for, and how much you think you’ll need to achieve those goals. Be realistic and precise.
- Be engaging and natural – Make sure your first impression paints you as someone who’s easy to work with. Don’t be too awkward or try to sell yourself too much because you may come off as inauthentic.
- Crunch numbers before your meeting – While VCs want to know about your business, they’re ultimately trying to protect their investment. Make sure you have your financials in place. Figure out your income, profit margins, debt, product pricing, and current needs prior to presenting your pitch.
- Do your research – Know the investor’s preferred industries, areas of expertise, background, and reputation before making a selection. Be sure to ask questions specific to your project after your pitch.
Conclusion
Securing capital is one of the hardest hurdles for small businesses and startups, but you shouldn’t lose hope. Finding funding is no cake walk, but it is possible. You still have opportunities to gain success without footing the bill by yourself. Just remember to be patient, do research, and take things one step at a time.
Are you passionate about business funding? Let us know in the comments! If you want more content like this, don’t forget to follow us on social media or reach out to let us know what you’d like to see.
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Katrice Stover is a passionate writer and the Community and Office Manager for Flying Pig Designs LLC. Combining her love for knowledge, growth, and a good read, it’s her mission to provide informative, engaging content for inventors, creatives, engineers, and industry professionals alike. In her spare time, you can find her dancing with her daughter, playing video games, and dying her hair vibrant colors.
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