Investment capital (VC) funding isn't the easiest route for securing money for your online business. You may recall the stories of the dot-com era when millions of dollars were thrown haphazardly into Internet start-ups. Well, in spite of that bursting bubble, vc's continue to be out in force; getting their money, however, is much more difficult now.
To tell the truth, we don't recommend even considering investment capital like a resource for any brand-new company. This kind of funding is designed for businesses that need an aggressive (or large) amount of cash to support a higher level of business growth.
Venture capitalists are institutional investors (professionally managed funds) that invest between $500,000 to $10 million or more in a business. Most often, this investment is made in preparation to have an initial public offering (IPO) on the stock market, a sale, or perhaps a merger with another company.
Suppose that you're considering big and are intrigued by investment capital as a funding source. How can you tell whether your company is ready to pursue VC money? Although the funding criteria vary among vc's, many of them generally expect the next from your company (and also you):
It has already used seed money. Your company is long past the point of obtaining money from friends and family included in its start-up stage. Seeking money from a venture capitalist means that you've already gotten additional rounds of financing from private investors and therefore are now ready for any more substantial investment boost.
It has a proven track record. Establishing a history of success is a necessity for venture funding. Investors expect your company to possess experience under its belt and proof of the underlying business concept. Through an offline (brick-and-mortar) business that has financial records that could be verified greatly increases your success of finding funding.
A skilled management team is in place. Being the only employee of a company isn't a positive thing when you are seeking venture capital. Instead, you must have an experienced team of executives with the experience to consider your company to the next level.
It's in a "hot" industry. Vc's invest in more than a company - they invest in an industry. And, some industries or markets are hotter than others at any time. Just as Internet companies were the favorites of the late 1990s, biotechnology (biotech) companies were the darlings of the past few years. Your business does not have to fall inside the top three industries of great interest, even though it certainly improves your chances for funding.
It's in a high-growth stage. Securing venture capital means that your company is not in an earlier growth stage. It's now positioned for significant earnings. Although the amount can vary, a great rule is that your company can achieve annual revenues of $25 million inside a 5-year time frame.
You're prepared to relinquish control. If you don't have in place a topnotch team of heavy hitters (including yourself), relinquishing executive control may become a condition of funding. If you previously held the title of CEO and president, you can be prepared to get replaced by an outsider of the venture capitalist's choosing. If you are serious about pursuing venture capital, you should do a few things first:
Visit seminars on venture capital funding (usually sponsored by professional organizations in your community) and satisfy the vc's involved in giving the presentations.
Look for other smaller businesses and ask for referrals to VC firms. This is a great time to inquire about questions and get a general understanding of what the process may be like for a company much like yours.
Securing venture capital is a tedious, time-intensive process. The sooner you start to understand the process, the more likely you are to achieve success when the time comes.
Keep a record of the companies in that they invest, how much they invest, and in which industries they most actively invest. During economic downturns, or when the economy is usually weakened, both vc's and angel investors become increasingly selective about where and how they invest. It becomes even more important for you to possess a solid business plan with a strong roadmap to a roi.
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Note: This article was sent to us by: Adam Wilson at 07022011
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