You may not know how to get venture capital when you start a new business, but accessing venture capital can mean success or failure of your business venture before it even gets off the ground.
Whether it’s at the start-up phase or once your business is up and running, you’re bound to reach a stage where you require additional funding. Knowing how to get venture capital can prove invaluable at pretty much any stage in your business’s lifecycle.
Do you know how to get venture capital?
Venture capital can enable you to obtain large – or small – quantities of money, and is accessible for new businesses with big start-up expenses or businesses that want to grow very quickly. You need to know how to access it before you even consider approaching venture capitalists.
Venture capitalists typically assist at four stages in the business’s development:
- Idea generation – low level financing to help prove a new idea
- Start-up – early stage businesses that need funding to help with marketing and product development
- Exit – to finance the ‘going public’ process.
How to get venture capital for your start-up
There are two things that an entrepreneur can do to improve his chances of getting funding for his new business.
1. Have a business plan
A basic business plan will include a summary of the company or opportunity, industry overview and details of the strengths, weaknesses, opportunities and threats facing the venture, as well as a financial overview, including past performance (if available), and projections for at least the next five years. This will help you clearly present your business idea to the venture capitalists.
2. Use online networking
The Internet can be invaluable in helping start-ups gain access to capital. Use social media platforms such as LinkedIn, Facebook and Twitter to connect with venture capitalists. It’s easier to approach a venture capitalist for funding once you’ve connected online. You can also use the Internet to find programmes that provide VC funding to start-ups.
General tips on how to get venture capital
What’s your USP?
It isn’t enough to tell investors your product or solution is better than anything else out there; you need to show what makes your business different.
Know your customers
Be sure you can clearly identify the market segment you’re targeting and explain how you’ll reach it.
Know your staff
Your team is of paramount importance because their experience and skills can make or break your business venture. Can they cope with the stress that the start-up or growth phase will inflict on the business and its employees?
Know your competition
Who else is playing in the same industry as you? Where do you fit in? Be specific about the companies you’re up against.
Know your industry
You need to know your industry inside and out, where the opportunities lie, what is a growth area, what is not.
What is your sales and distribution model?
What distribution channels and partners do you plan to use? How long does it take to close a sale? How much does it cost to acquire a new customer? What are your key pricing metrics?
Have a mentor
One of the smartest things you can do is find a mentor, coach or counsellor. You need someone who has experience and wisdom to share with you on running a small business and being an entrepreneur.
Know how you are going to spend the money
This may seem obvious but it isn’t always the case. Investors like to know their money will be used to build products, hire employees or add to the business in some other tangible way.
You can’t succeed every time, so you need to be able to accept failure, learn from it and move on.