You have probably heard of the term “venture capital” before but you might not be one hundred percent sure on what it means. It is an investment method that can help you to get your startup off the ground. You can also use it if your company exists already, but you are trying to expand and take things to the next level.
Basics of Venture Capital
With venture capitalism you come up with a business plan, you approach a venture capital firm, and you try to sell them on the idea. It is a rarified subset of investment in startups. Most of it comes in amounts in millions of dollars, invested in companies that are already launched, growing, and needing follow-on investment.
On the other hand, angel investors are more likely than venture capital to occur in a new company and invest in about 75,000 startups in average each year.
How to Find Investors for Your Startup
Review your startup’s suitability. You need to have good growth potential, scalability, defensibility, and experienced and credible management team, and a prospect for eventful exit. You have to have them in the eyes of the investors. Traction is also another essential. This means having hard evidence of market need and product-market fit, with users, subscribers, clients, distributors, customers, depending on the nature of your business.
Have a Lean Business Plan
Your business plan needs to include strategy, tactics, milestones, metrics, and numbers on projected sales, spending and cash flow. For working with investors, you should have a summary memo that summarizes that plan, and a pitch deck ready to go too – both of these are outputs of the plan. Beyond the lean plan, you will want to have an executive summary, a pitch deck, and additional descriptions of the management team, competition, and market analysis. Make sure you are generating traffic and focusing on marketing much more than profits.
Develop Your Summary
Summaries are critical to the investment process. You do not send business plans to investors until they have asked for them. You send the summaries to establish interest. Many investors prefer emails with a summary. A compelling pitch deck to communicate with investors and a brief email outlining the growth prospects, type of business, and potential investor payoff.
Select Investors Carefully
Do not shop your plan. Research your potential angel investors, looking for deal size, industry, and geographic preferences that match your plan. Having the right investor can change everything.
Approach Investors the Right Way
For the angels whose criteria match your plan, find out how they want you to communicate with them. Know whether your target investors prefer email summaries, summary documents, pitch decks and phone calls.
Make Sure You Have a Good Relationship
To make a deal you will need the right legal help and have a good relationship with an experienced attorney. Make sure your attorney has been through similar deals. Investment deals are serious business.
The Bottom Line
Finding the right type of financing for your business means knowing what you need the money for and what lender makes the most sense for you to partner with. If you are starting a new business, a venture capital firm can give you guidance to help you get your business off the ground. Alternative lenders are the best option for short-term, high-interest loans for any type of business.
Regardless the type of financing that you need, the best way to find financing is through networking and connection with investors of all types. Once you target a few you can partner with the company that makes the most sense for your business.