In my blog post last week, which outlined the features of Venture Capitalists and VC Funds, I wrote about how they work with businesses to fund them through their growth phases. Today I want to help shed some light on the actual process of gaining Venture Capitalist funds and determining whether your business is a viable candidate for them.
Let’s consider first whether your business is one that will deliver the kind of returns enticing enough for Venture Capitalists. As the business owner, you need to contemplate:
- Are you going to have the profit margin necessary to be giving someone else 28-35% of it?
- Once your business starts to grow, is it scalable; in other words, will your increasing revenues cost less to deliver?
- Is your industry one where it is common for buyouts to occur?
- Are you growing fast enough?
Last, but not least, are your business and its future growth defensible? If you can’t explain it and what you have, how is a Venture Capitalist or VC Fund going to believe it.
Whether you’re going to pursue a Series A or Series B level of funding is determined by where your company is in its growth and this whole journey. Series A is for those seeking their first round of funding; you’re ready to go and make your mark. It is a milestone-based investment. Whereas, Series B investing occurs after you’ve had your initial round of monies and the business is prime for moving to another level of expansion. At this point, the risk has perhaps diminished some.
Now that we’ve given you food for thought in regards to having what it takes to attract Venture Capitalists, let’s review what comes next…the Funding Process. The process is a long, resource-intensive one that is not for the faint of heart. I’m going to break it down for you into five stages:
- Find the right VC
- Targeted Approach
- The Perfect Pitch
- Due Diligence
In my upcoming articles, I will dissect these stages into bite-size pieces so you can more appreciate what I mean when I tell you that the process is not an easy one, albeit in the end it can be an extremely beneficial one. In the meantime, take some time to ask yourself the questions at the beginning of this post, and try to determine if your company is poised for the kind of growth that could warrant Venture Capitalist funding.