What is Venture Capital Funding?
Venture Capital (VC) funding is the investments provided to start-ups or small businesses that have long term potential growth. These are a type of equity financing that allows budding entrepreneurs to raise funds.
Venture Capital comes in the monetary, technical, or managerial form provided by angled investors, investment banks and other financial institutions. VC considered to be a risk capital comes with a very high-return opportunity
Stages of VC Funding:
As every company is unique in its way, the different stages of funding can vary, but in general, there are five primary stages of a Venture Capital Funding.
Seed Stage: As the word seed suggests, it is the fund that will begin the growth of a start-up down the road. At this juncture, the entrepreneur puts in all the effort to convince the investors that their ideas are worthy of VC support. The amount funded at this stage is generally small.
Start-up Stage: At this point, the companies are ready with their business plan and look to advertise their product or services through the final product is not prepared at the operational level. Typically the company ready with its prototype for the investors by now, and the VC funding is utilized in further growth of the product.
First Stage: Also known as the ‘Early Stage’ is the period around the companies’ market launch, when the start-up is about to have its first share of profit. The VC funds received during this stage go directly to the manufacturing of products and the amount invested is significantly higher.
Expansion Stage: Once the company starts to grow exponentially, the Expansion Stage comes in when VC funds procured to fuel the growth. Funding at this stage is diverted to further expansion of the market and development of the product.
Bridge Stage: The last stage of VC funding comes once the company has hit market maturity, and the funds received at this stage used for mergers, acquisitions or IPOs. The investors also look to sell their shares and make fat profits or exit.
How VCs select Start-ups and Access Deals?
Investing in start-ups can be tricky at times keeping in mind the risks involved in it. So the question that arises here is how VCs select the companies they want to invest?
It turns out that these investors run a high-level quantitative and qualitative analysis of the potential prospects. The three primary grounds of evaluation are People, Product and Market.
Another big question that comes in the selection process is that as a Venture Capital, why the investor should be more interested in your team over any other organization with a similar idea. VCs generally run a few background checks to get to the answer to this question.
The uniqueness, background, and experience of the team come very handy in this situation. Investors tend to prefer the teams with a strong leader who has some prior experience in the field.
How to choose the Right VC Investor?
A Venture Capital comes along with its pros and cons, so before proposing your ideas to a probable investor it is essential to take the following factors into account;
- Credibility and Connections: A good VC can bring in a lot of credibility and connection to your company, so it’s advisable to check the market history of your investor.
- Funds Required: Different VCs invest on different scales so one must check-in their requirements and approach a suitable investor accordingly.
- Location: A geographically close VC can help you in many ways as they save a lot of time and expenses that come with traveling for meetings with your investors.