“Venture capital” is a term that is common to business discussions. More often than not, the belief is that venture capital financing is quite complicated and difficult to understand, especially for those who are new to the business arena. For those who may be interested in going into business, it is essential to know what venture capital is all about.
Venture capitalists and firms consist of individuals and firms that have pooled their resources to invest in businesses. Their investments may be for start-up financing or for business expansion. Typically venture capital firms are seeking to earn profits within a short period of 4-7 years. The goal is to increase the company’s worth so as to earn more profit at its exit. This may be an initial public offering, commonly known as an IPO. Other exits include an investor’s buyout, a merger, or an acquisition.
Venture capital firms often concentrate on a particular field or area. It is paramount that you know what these areas are. This is their investment criteria. If your business venture does not match the interests of a particular firm, there are many alternative firms that you can pursue. You just have to know where to look.
The web is one source of venture capital firms. Do a search on the internet. Many websites are helpful in providing lists of these firms. They may also provide tips on how to draft your proposal and how to raise venture capital.
When you’ve found a matching investor, it is then time to draft your proposal. It should be truthful, accurate and thorough. You might want to ask a professional to check your proposal before submitting it. Your proposal should leave a mark in the minds of the firms you select since they have to go through tons of them. An estimated 1 of every 400 proposals gets approved so it is imperative that your proposal be impressive.
When we speak of profit and earnings, we’re not talking about a few thousand dollars in a year. Venture capital firms seek a return of up to five, or even ten, times their initial investment. And this does not include the management fees and other fees they may require.
This explains why venture capital firms tend to take the reins of the company. It is vital that you organize a solid management team that knows what they’re doing. This team should also be able to handle the pressure from these capitalists. While it helps if you appear to manage the business well, it is still necessary to listen and understand the strategies that these firms provide. Aside from these tried and tested policies, following their decisions will also assist you in the long run should you need more money.
Venture capital is a wise investment choice for both entrepreneurs and capitalists. You and the investment firm have a common goal. That is to earn as much profit as possible after a short time.
If this does not seem reasonable to you, other financing options are available. The best thing to do is to examine all the pros and cons before deciding anything.