Unfortunately, the world’s rules clearly state that if you want to develop a company, you must have money. Nowadays, a good idea is sometimes not enough. In a world where almost everyone uses the Internet, things like marketing, ads, and user adjustments are needed to stay on the market. Startup development is expensive, as you probably know. Situations like stock market crashes show that even the biggest players need money. So, find out what you can do as a startup and how venture capital (VC) can help you with that.
In this article, we cover the topic of venture capital and how to prepare to secure such funding. If you want to know more about VC, click here to read our previous article on the subject.
Venture Capital
Venture Capital (VC) represents a crucial aspect of funding for start-ups and small businesses with long-term growth potential. It is a form of investment where investors, known as venture capitalists, provide financial support in exchange for equity or shares in the company. Unlike traditional loans, venture capital is an investment aimed at achieving mutual gains for both the business and the investor within a specified time frame.
When a start-up’s product is positively validated in the market, and the company initiates expansion, VC funds become a key source of financing. Importantly, this type of funding does not require personal assets as collateral, making it one of the main advantages of this approach.
Differences between VC Funds and Business Angels
Similarities between funding from venture capitalists and support from business angels often include the contract period. It typically lasts from 3 to 7 years. Both approaches also offer unlimited benefits beyond financial support. However, there are significant differences.
- Business angels operate discreetly and without publicity, making it potentially more challenging to establish collaboration with them.
- VC funds have portfolios of supported companies, facilitating potential investors’ access to their investment history and experience. Moreover, venture capitalists often bring “smart money” – their knowledge and mentorship – which can be crucial for the development of a start-up.
Collaborating with VC Funds – Key Presentation Elements
Start-ups aiming to secure venture capital should focus on key elements of the presentation known as a pitch deck.The decision to grant funding can depend on various factors. VC funds seek start-ups that stand out in the market, possess a solid understanding of the market, an effective business plan, and the potential for rapid scaling into international markets.
Start with
The first meeting with the capital provider should start with an investment teaser. Investment teaser is a shortcut of your startup lifetime. Thanks to that, investors can know your company and see how it works. In that short story, you should put information like startup description – history, current situation, plans for the future, additionally: if your idea is very out of the box, you can see its vision and development.
The part that can’t be forgotten is the team. Potential investors would like to know who works at your company.
Another matter is competition and market analysis. A good CEO of a startup knows what is happening around the company – knows its weaknesses and strengths, challenges and dangers.
The most important part of an investment teaser is a business plan. So, how do you properly “use” a business plan to initially attract an investor? It is best to extract the most important, specific and eye-catching information from it. All we have to do now is wait for the meeting.
The First Meeting with Investors
Another step in getting VC funding is meeting face-to-face with capital providers. For that step, you have to prepare a presentation very similar to an investment teaser. After the presentation, investors probably will know something more about you and check your abilities. So don’t be surprised by different questions, even those private ones. Often you also need to show a working prototype, something that investors can see, use and then show to your experts for independent opinions.
Negotiation
Another step in obtaining VC funding is negotiation. It’s a very good sign to be invited to the next meeting with capital providers. This time is not easy because two sides with a little bit of different attitudes meet. (Investors strive to secure their capital as best as possible, and the CEO needs as much financial support as possible.)
Commencing negotiations, it’s crucial to recognize that securing VC funding presents a significant opportunity for startup advancement. At times, it may be prudent to make concessions in pursuit of funding. Negotiation avenues include seeking a higher valuation, modifying terms, or incorporating specific provisions. However, it is imperative to substantiate each argument with sound justification. Consult extensively with your legal counsel during this phase and seize the opportunity wisely.
Once investors express their commitment to the vision, ensure that your legal representative specializes in financing rounds. This is pivotal, as the multitude of documents and terms on the table might initially seem favorable. A skilled lawyer acts as a “safety net” in contract signing, distinguishing non-standard elements and identifying terms that may prove unappealing in the long run.
To increase your chance of being seen by investors, look for the opportunity to meet them. Go for startup conferences and use face-to-face meetings. It’s a great way to meet active VC and get feedback about the product and its presentation. Let’s remember that at a very early stage, such as pre-seed, investors mainly look at the founder and the team.
This text is from our original e-book on startup financing. To learn more about startup financing, visit our website and download the free e-book.
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