A Guide to Venture Capital

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One of the most sought-after financing methods for entrepreneurs is venture capital. The process of acquiring venture capital is usually long and complex, so it is wise to have a good understanding of it before getting in.

The prep work has already been done for you in the form of an eBook titled “How to Get VC Funding” which describes the process from start to finish with beginners in mind. It is a free resource that is a must-read for any entrepreneur looking to get VC financing.

VC financing

The most important takeaways from the eBook are highlighted below.

1. Have a good understanding of early stage venture capital

Venture capital financing is defined by Entrepreneur as funds flowing into a company, usually during the pre-IPO process, in the form of an investment rather than a loan. The investments are controlled by an individual or small group called venture capitalists (VCs) and are secured by a substantial ownership position and require high returns.

Simply put, VC firms invest in companies and get shares in those companies in return, hoping to see a positive return on that investment. The main source of venture capital funds tends to be institutional and private investors. Typically, VC investments are essentially long-term partnerships between VC firms and corporations.

2. Determine if your business is ready to pursue VC financing

The best time to approach VCs for an investment varies by company. While you can attract a VC partner with just an idea, the vast majority of deals close once a company has 3 concrete items:

A team of founders A minimum viable product (MVP) Customers

Venture capital is aimed at companies that have high startup costs and are designed to grow quickly. For the best chance of getting VC funding, it’s important to have a disruptive idea, preferably in an industry where VCs usually invest heavily, such as technology, along with an impressive management team.

3. Build a pitch deck and presentation

A solid pitch deck will be your calling card if you’re looking to raise money from a VC, as well as the starting point for most introductory meetings.

A pitch deck refers to a presentation that gives an overview of the company. It can be used to share insights about your service or product, market opportunities, business model, your management team and your company’s financing needs.

It is important that a pitch deck is short and to the point and includes the elements below:

Corporate Finance Investment Amount Business Progress Market Pain Point And Solution Management Team

Securing venture capital financing

4. Find the right VC to fund the business

All VC firms have a specific focus when it comes to the type of businesses they fund. They typically invest in consumer products, software, green technologies, fintech, AI, or any other business category. Each VC firm focuses on a different stage of investment (Series A, Series B, Series C, seed, early stage, etc.). So research is the first step in achieving VCs.

Once you have a target list of VCs to approach, now is the time to set up meetings. You get 2 possibilities to make connections: a cold e-mail to a VC partner or an introduction from someone in your network.

5. Mastering the VC Term Sheet

The term sheet is basically a non-binding list of preliminary terms for VC financing. It is also informally referred to as the first real paper a VC founder receives once he has made the decision to invest.

A term sheet has 3 main sections:

The Financing section: This sets out the financial guidelines of the proposed investment. It outlines how much money the VC firm is willing to invest and what it wants from your company in return. The Corporate Governance section: It is used to define the distribution of power between investors and founders with regard to corporate decisions. The liquidation and exit section: it describes what will happen to shareholders and investors if the company is sold, dissolved or liquidated. It defines who gets paid first and highlights any specific preferences given to investors.

6. Complete the due diligence and close the deal

As a founder, you may have a higher chance of closing a deal with a VC if you prepare properly for due diligence, which refers to the process investors use to gather the necessary information about the potential or actual risk of an investment. . It’s also important to become familiar with the reasons why deals usually go wrong and take proactive steps to encourage a close.

The final stage of a VC financing agreement is the time to coordinate between the VC office, your internal teams and your legal advisors. During this time, founders must promptly deliver on their commitments and provide accurate information about their companies.


This post A Guide to Venture Capital was original published at “https://www.noobpreneur.com/2022/04/20/a-guide-to-venture-capital/”

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