How to Secure Venture Capital: A Guide to a VC Funded Startup
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Originally Posted On: https://floridaindependent.com/a-guide-to-a-vc-funded-startup/
Are you looking for ways to get your new business some capital? If so, you should consider getting your business VC funded to help get money in no time.
By using VC funding, you’ll be able to grow your business in no time. In addition to funding, you’ll also be in contact with industry experts to help with any questions you may have. If VC funding sounds like the right thing for you and your business.
Keep reading our guide below to learn all about it
What Is Venture Capital?
Venture capital is a type of private equity. This financing is something that investors will give to start-up companies and small businesses alike.
Investors will only give venture capital to businesses they believe have the potential in long-term growth. Even companies that have grown quickly in a short amount of time can qualify if they are looking to expand.
Venture capital will usually come from investors that are well off, but it doesn’t take a single form. Venture capital can also be offered in the ways of managerial or technical expertise.
What Are the Basics of VC?
During a venture capital deal, large chunks of the company are created, divided, and sold to investors. This selling happens through limited partnerships. These partnerships are independent and usually, they are established by venture capital firms.
These partnerships can have a pool of different investors that have similar enterprises. Venture capital will focus on emerging companies that are seeking a decent number of funds for the first time.
What Is the VC Process?
If you’re looking to fund your business through venture capital, then you should know that there is a process. The first step for any business looking for venture capital is to draft up and submit a business plan.
When submitting your proposal, you should know who you are submitting to. If you’re looking for venture capital, then say so. If you’re looking for an angel investor, then make it clear so you can be put in touch with the right people for your needs.
If the investors are interested in your proposal, then the investor will perform due diligence. This will involve the investor looking into your company’s products, business model, and management among other important things.
The background research that an investor does on your company is a very important part of the process. This is because they will be providing you with a large sum of money. After performing their due diligence, they will then pledge an investment in exchange for equity within the company.
Usually, the capital that is pledged will be provided in rounds, but it’s not unheard of to have the full pledge given all at once. Your investor will exit the company after a period of time; this can usually take a few years.
How Do I Pitch for VC Funding?
Now that we have discussed the process of venture capital, you may be asking yourself how you’ll pitch to investors. Preparing yourself for pitching will require some research.
You should also be familiar with the venture capital funding process. Below, you will find a few tips on how to pitch your company to venture capital investors.
1. Prepare Yourself Thoroughly
When applying for venture capital, it’s very important to be prepared. Any investor will want to know why you deserve their support, and you should be ready to answer this.
You should only be making assertions and representations that you can support when proposing your business plan. If you lie, the investor will find out soon enough when they begin their due diligence process.
Also, before contacting any fund managers or investors, you will also want to look into them. You should find out what their funding specialty is and look at past investments they have made.
This will help you to get a roundabout idea of what the investor has experience in and what they have funded in the past. If your business is outside of their interest or expertise, then it’s time to start looking at other investors.
When meeting with your potential investors, you should know a bit about them, so doing a little research beforehand on them isn’t a bad idea. You will also want to be as clear as possible when relaying the problem your business will help solve and why your company is valuable.
To help you make a clear statement as to why the investors should be helping your business, you should ask yourself why you’re pitching and what you want the outcome to be. You should also consider who you’re pitching to and if they are the appropriate party for your outcome and business.
2. Get Necessary Documents Together and Ready
After choosing someone to pitch to and getting your explanation on why they should invest in you as clear as possible, it’s time to get your tools together. Ideally, you can think of this as building a toolbox filled with dynamic documents that can easily be changed or modified as you learn more about the market place.
These documents should cover things such as legal issues, compliance, and intellectual property. You should also have documents and plans that you’ve created, such as a 60 to 90-second elevator pitch, follow-up documents, a sales pitch that for your targeted customers, a one-page description of your idea that’s concise, an awareness pitch for those outside of your customer demographic, and your business plan that includes a fact sheet.
3. Know Who Your Targeted Audience Is and Why They Need Your Business
One of the most important things when it comes to your pitch is knowing who your targeted audience is. Understanding your targeted audience will help you narrow down investors and find ones that will support your niche.
You should be asking yourself: who are you pitching to? You should also ask why these people should care about your services.
Answering these two questions will help you when it comes time to pitch your business. It will help investors to get a clear idea of who the targeted audience is, why they need your service, and let them know that you have a handle on potential customers.
Where Do I Find VC Funding?
Now that we’ve discussed how you should pitch for venture capital, let’s cover who or where you’ll be pitching to. When looking for venture capital funding, it may seem like a tedious process. But it’s important that your company is ready to approach venture capitalists.
Since the right moment to approach someone for venture capital funding varies from business to business, it’s hard to say when the exact right time is. Usually, after a business has a founding team, customers, and a minimum viable product, that’s the right time to approach investors.
When you’re ready, you can do so through a venture capitalist firm. Every venture capital firm has a specific focus that you should be aware of before pitching to them. It’s also important to note that each firm will focus on different stages in business development so you should also research this before contacting them.
After researching and creating a list of investors to approach, it’s time to contact them directly and begin setting up meetings. You can either contact the investors through networking (have someone you both know approach them) or by sending a cold email to them directly or their partner.
Get Your Term Sheet Knowledge Ready
So you’ve contacted a few people and you’ve finally heard back. Meetings have been set up and you’re ready to go and get some investors. You’re really close to closing the deal, but we don’t want you to attend any meeting without knowing the term sheet.
A term sheet is a non-binding listing of terms that are used for venture capital financing. When an investor is interested in funding your business, they will present the term sheet.
Before attending any of your meetings, you should know what the 3 main sections are. The sections you should familiarize yourself with are the funding section, the main purpose, and the liquidation and exit section.
The funding section should lay out the financial guidelines of the investment the investor is proposing. It will outline how much money from the venture capitalist you’ll receive and what they want from your business in return.
The main purpose section will help to define the division of power between the investors and founders. Lastly, the liquidation and exit section will outline what will happen to shareholders and investors in the event that your company is liquidated, sold, or dissolved. It will state who gets paid first in the chance of these events and state any particular preferences that were given to investors.
After looking over the term sheet and discussing it with the investors (making any changes or modifications as needed), it will be time for them to perform due diligence after the term sheet is accepted. Now you’ll be onto the last step of the venture capital funding for your business before closing the deal.
Prepare for the Due Diligence and Closing the Deal
Now that the term sheet has been worked out and accepted, it will be time for your investors to perform the due diligence process. As a founder of the company, you can assist with this process and help to increase your chances of closing the deal. To do this, you should be prepared for the due diligence process.
You should have the necessary information already drafted so when the investors ask for it, you’ll have it ready in no time. You should also be aware of where your important documents and statistics live so you can gather them quickly if the investor inquires about them.
Another aspect you should familiarize yourself with that will help your chances of closing any deal is becoming familiar with why some deals go awry. You should know information on potential risks so you can combat them if the investors bring it up. You can also start planning proactive steps to combat these downsides to show the investors you’re doing everything in your power to make sure nothing will sabotage your business or their investment.
After the due diligence process and discussing things such as risks with the investors, they will decide if they’d like to go through with the funding. If so, it will be time to find alignment across all your internal teams.
These internal teams can be people such as your legal advisors. The legal advisors must be in contact with the investor or the firm.
At this time of connecting parties, it’s important that the founders of the business follow through on any commitments to the investors and provide them with any information they ask about. Doing so will help to ensure that the deal doesn’t fall through and that you’ll land the funding your business needs.
Now You Know How to Get your Business VC Funded
We have covered the basics of venture capital funding so you know the process and steps to get your business VC funded. From outlining what venture capital funding is to telling you how to prepare for your proposal, you’ll be sure to land an investor in no time.
For more start-up information and tips, be sure to check out the rest of our website.