What is Venture Capital? Here’s a gist of what it is about it!

At a Glance

Are you looking for investors for your startup? Don’t settle for just any deal! Here’s how you land the right investment! – Venture Capital


Introduction 

Startups are young businesses created based on novel ideas that will benefit society while providing the founders with astronomical returns on their investments. They attempt to develop a unique product or service and market it as a captivating experience. 

Most of the ideas presented by startups focus on the limitations of existing products and services. Consequently, startups often wholly disrupt the industry with their refined products. 

Starting a new business comes with its challenges, but getting the necessary investments is one of the most challenging elements of a startup.

Funding a Startup 

Despite the novelty of the concept presented by a startup, finding investors is still a tasking process. However, external investors are often not the first step of funding. 

Generally, there are four rounds of funding for most startups. These are: 

  • Bootstrapping – described as the primary investment by founders, friends, and family. 
  • Seed Funding – Refers to the individuals who invest in the early stages.
  • Series A, B, C, and D Funding – Investment made by venture capital firms. 
  • Public Funding – The final step is possible only once the company becomes public and accepts investments through IPO. 

This article will focus on just the third round of funding, namely, funding by venture capital firms. 

What is Venture Capital? 

 Venture capital, by definition, is a type of financing tool for large companies looking to invest in up-and-coming technology. Small businesses and startups with the potential for exponential growth are provided with all kinds of necessary resources to enhance this expected growth rate. The help is not only in the monetary form; instead, it also includes technical support and helps in the managerial process. 

Some investors select from a wide range of small companies that have already shown quick growth rates or are expected to grow. Other investors are particular with their requirements for the startup. For example, certain investors look for the specific technology used, the startup’s geographic significance, etc. 

Pros 

  • There is a real potential for above-average returns as a payoff for investors’ trust in the small business. 
  • For startups with limited knowledge about the industry operations, apart from the financial support, venture capital is also a means of understanding the internal functioning of that particular sector. 

Cons 

  • As these investments are based on the probability of success, there is also a chance of the investors facing losses. 
  • From the founders’ perspective, they lose complete control over their company because they have to provide the investors with equity in the company in return for their investments. 

How Do You Get the Right Deals?

In most cases, startups and small businesses result from the entrepreneurs’ intense dedication and passion. While advertisements and online announcements claim that obtaining funding is relatively easy, the reality is far from this! 

Firm conviction and passion over your concept is not the only thing you’d require when presenting your project to investors. Similarly, several critical factors decide your fate concerning the investors.

This article briefly describes the top 6 critical factors required to obtain venture capital. Nail these criteria, and the money is yours! 

1. Reliable Team to Back you Up 

A solid core team is one of the critical elements of any startup. While your concept might be mind-blowing, investors tend to hesitate when there isn’t a reliable team to back you up. 

You don’t necessarily need a world-class team, but you need capable and reliable individuals with you. Founders scout for skills, and they do all required to bring forward a stellar presentation. As a lone entrepreneur, you might not be able to land the investment despite your fierce passion. This is because investors remain unsure of your success if you cannot even build a successful team, to begin with. 

2. Innovation at its Best 

The Idea behind your startup might all be just your brainchild, but it is still possible that it isn’t unique. There could always be numerous versions of a solution for any given problem. 

How do you stand out?

Connect your Idea with a relevant issue or problem within the society. Investors are interested in your product when your concept is presented as the best fit solution for all customers. 

Technology also plays an essential role in the acceptance of your Idea. In most cases, startups with more straightforward technological backup that even non-geeky customers can understand are preferred by investors. Meanwhile, it would help to stay relevant to the current technological advancements. 

3. Benefits to the Community 

Based on the research you’ve conducted, what is the traction of your product in the market? If you receive strong validation from society, investors are more likely to accept your proposal. 

One more aspect to keep in mind is the impact of your product or service on the community. Startups that focus on creating products or services based on the community’s needs tend to be well received by investors. 

4. Longevity of your Idea 

We have already established that most startups work on the limitations of existing products to create better conditions. Investors are concerned about only one aspect of these innovations, their longer-term sustainability. 

Investors are not interested in products or services that have a market only for the near future. From a business perspective, investing in companies with no future development scope might often lead to losses. 

5. Market Position vs. Competition 

Jumping on to the bandwagon of an already crowded market will result in making things more complicated! The alternative is working in a less common field and creating a niche in that market. The market size doesn’t matter if you can dominate any market you enter. 

Competition is part of any developing business, and they provide the much-needed stimulus to work harder and faster to be the most successful in that particular field. Investors need to witness substantial evidence proving that you are the better choice when it comes to investors.

6. Control over Finance

Wary of the financial side of being an entrepreneur? Unfortunately, you can not do away with it! If you are looking to grow, accurate finance data and credible projection are critical. 

The projections of your future financial status prove to the investors that you know how to handle money. When you discuss your business in numbers based on reality, it demonstrates that you understand the economics of your startup. If you combine this projection with accurate data from the industry as a whole and the current trends, you are all set! 

Conclusion 

Hesitant to finally take a step towards realizing your dream because of financial problems? Well, here’s your solution: venture capital

When you’re sure about your concept and have a stellar team supporting you, hesitate no longer! Securing the funds might be cumbersome, but focusing on these six fundamental factors will help bring that funding home!  

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