Startups

Raising Venture Capital 101

venture capital

Every business needs capital to grow, which is one of the strongest and dominant forces affecting any kind of business and industry. So does a startup. Since not all startups have huge amount of capital to invest in their product, before launching their product and once launched to sustain in the market while combating their competitors and other market forces, all they can do is depend on external sources.

Raising funds from outside can be of two types namely, debt financing and equity.

Debt financing refers the capital raised wherein one has to pay interest on the capital raised. Equity financing implies to providing funds in lieu of owning a part of the company.

One can raise funds from sources like angels, VCs, engage etc.

While venture capital provides financial assistance to early- stage, high-potential companies for equity in the companies it invests it. These are medium funds that invest greater amounts of capital for greater amounts of equity. To name a few, Andreessen HorowitzSequoia CapitalGoogle Ventures, etc. are some portals rendering financial assistance.

Other sources include angels, super angels, micro seed funds/accelerators and growth equity.

While angels refers to a wealthy individual who invests his/ her own money, in a business usually they hold an expertise in. These people are ex-founders and affluent people.

A super angel is the lead investor in the group of angels (syndicates).

Micro Seed Funds are the ones doing a lot of small investments in lieu of less proportion of equities.

Accelerators like Y-CombinatorKima VenturesTechstars, etc. render multifarious services like mentorship, business connections and professional services (such as providing legal assistance for the company) by selling themselves.

Growth Equity is the one with an enormous amount of capital investing huge amount of money so as to expand a successful business model.For e.g. Summit Partners.

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Now, to raise funds from either of the above-mentioned portals one needs to be thorough with his or her research before approaching them. Since, venture capitalists and private equities come across a lot of things happening every day and to get them invest into your business one need to stand out from the crowd.

What venture capitalists look for is one-of-a-kind business. A business that holds the power to bring an impact in the industry, a business that change the world, distort the existing industries and makes indispensable returns on investment.

The idea of your business should reflect your passion with a solid business plan. One needs to have a great executive summary and should be clear and thorough with his or her preparation to make the investors invest in your plan. One should be able to take the investors into their confidence so as to make them invest, as investors don’t invest in the product but in people. If your business plan is not persuasive enough they won’t bother to read your entire business plan. Therefore, to grab their attention one needs to place all the important and eye-catching points at the front. This means one has to be outstanding while creating the executive summary and succinct business plan.

These are things that financial specialists or investors look for.  They scrounge for someone who’s ravenous and who will drive themselves to succeed. The business framework should be able to target the sort of people one would be seeking help from and the most appropriate platform to raise funds. Ironically, it is easy to raise a higher amount of money from a venture capital in contrast to being able to raise less from external sources.

In order to raise funds, one should be thorough with the research  as it gives you an idea about the sort of investments  the financial specialists are interested in- making it the focal point of your research, as approaching wrong people can be frustrating and would kill your time. Therefore, one should reach out to the investors who would be interested in your sector as most of the investors work within specific areas.

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Conclusion:

Since a lot of people would invest in a proven idea than an unprecedented notion of business because of the high ration of risk-involved when it comes to the chances of a startup being a success, one needs to target the right financial specialists at the right time which is an outcome of a thorough research with an outstanding business framework.

Private equity can be frustrating as a lot of investors don’t believe in investing a startup, which has now stepped into the changing domain with schemes like Enterprise Investment Scheme focused on giving more incentives, increase in game-changing and high-growth startups.Angel investors are often a better source, as they do a lot of investment in startups.

If one is able to fund the startup on his/ her own, it is easier to raise secondary funding as a general rule of thumb. As it sets a record of success and makes it easy to raise venture capital for a second business as you’ve proved yourself.  At this point angel investment steps in.

In the event that you don’t have a demonstrated set of record of success, then the Enterprise Investment Scheme give financial specialists more reasons to put resources into you by offering charge alleviation and different points of interest – they can likewise help you arrange a superior arrangement, so make certain to perceive how these can make your offering more alluring to investors.

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