Venture Capital (“VC”) can be a great source of growth finance for businesses, but getting venture capitalists to invest in a company or startup can also be one of the biggest challenges that an entrepreneur can face. But just what is Venture Capital funding?
Venture Capital is a form of private equity investment, where a business receives unsecured funding in exchange for a share of its equity. The aim of venture capital as a field is to make investments in early and mid-stage companies with an aim of profitably exiting their investment at a later stage – usually within 5-10 years.
Advantages of VC
The level of funding and expertise a venture capital firm can provide will typically help your business grow at a much faster rate than would have been possible without. Alongside this fact, most VCs can bring invaluable skills and expertise to your business and provide useful business contacts.
Disadvantages of VC
As well as giving up equity, you will have to be prepared to lose some control over your business. While the VC investment team will not want to be involved in the day-to-day running of your business, in most instances they will appoint someone to be a member of your board and will expect to be involved in the strategic direction of the business. You may sometimes feel as though you are working for the VC rather than for yourself.
Type of Business
VC investment is best suited to entrepreneurs running high potential growth businesses who are happy to relinquish some control and accept a smaller piece of the business, in the hope that the eventual piece will be much larger than they could have achieved on their own. Taking on a VC is not for the faint-hearted – in return for their investment they expect total dedication to the business from the entrepreneur.
It is important that business owners approach the growth of their company realistically, as not all businesses are suitable for VC funding. VCs look for truly ambitious ventures that show the potential to generate exceptional returns. If you see there is the potential to grow your business, then VC funding is for you. But remember: few businesses have this true growth potential, and there is an array of alternative funding routes available to suit different types of business, including crowdfunding sites and angel investment networks.
What size of investment can an entrepreneur raise?
VC firms are generally interested in investing between £50,000 and £1 million in a business, and some may blend a mix of debt and equity. Different firms adopt different investment criteria; some specialising in particular stages of growth – start-up, early stage, later stage – and others in different industry sectors.