Is Venture Capital Right for Your Business Startup?By James Blake on
Raising Venture Capital is fiercely competitive, and many folks have unrealistic expectations and views about their company, its value, and the process of raising venture capital. Here are five tips to get you in the right frame of mind.
1. Re-Evaluate Your Company. Does your company have the ability to earn $20-$50 Million in the next five to seven years? If not, your company may not be very appealing to venture capitalists. Other sources such as angel funding or small business loans may be more appropriate for you.
2. Eat Some Humble Pie. You may have a great idea and you may have done a great job developing the company to this point, but venture capital funding should come hand-in-hand with recognizing your own limitations. Be willing to share control and hand over responsibilities to professionals with strengths and skills that you lack.
3. Be Ready to Give it Away. It’s almost humorous when someone seeks venture capital with the mindset that he doesn’t want to give away much of the company’s equity. Realistically, you’ll probably trade 40% of your equity in the first round of financing, and you’ll have to give more equity in subsequent rounds. Don’t fool yourself – almost every business financed by venture capital requires more than one round of financing.
4. Timing is Everything. Is your business ready for venture capital? The answer may be ‘No,” and other financing alternatives may be better. If you don’t have a developed product or business, then you are not ready to seek funding unless you have thoroughly researched business plans, a well rehearsed powerpoint presentation, and experience pitching your company to and answering questions from sophisticated business people.
Is the venture capitalist ready for you? Venture capitalists typically raise and invest money in five-year cycles, and they are much more likely to invest in your company toward the end of their cycle.
5. Demonstrate Your Relevance and Commercial Marketability. Out of a million great ideas for products and services, only some of them have the potential to be commercially profitable at a large scale. A great product or service alone is not enough – you must demonstrate how your management team and commercialization strategy will thrust the company toward its growth projections to achieve revenue and valuation goals.
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