Venture Capital Guide

Raising venture capital to fund a development and growth is a real challenge for entrepreneurs of all backgrounds.

Here, we outline a number of sources where entrepreneurs can find venture capital, and steps involved in raising capital founders should be aware of during their search. 

Raising venture capital is a process that takes time, and securing investment at every stage of your business requires strategy. 

To begin with, entrepreneurs should allocate a significant period of time to carefully analyze the viable sources of capital they can tap for their specific venture. Sources of venture capital available to small businesses not only differ depending on the specific stage of a company's life-cycle, but also the specific industry or sector focus of the business. 

So take the time to research which institutions and investors make habitual investments in your industry. Study their previous investments, where they succeeded, and what they are currently looking to make future investments. 

The easiest way to collect and analyze this data is to create an excel spreadsheet that records all of the relevant venture capital institutions within your industry that could be impactful for your venture.

Consider organizing your spread sheet in the following way:

 

Capital Investment Outreach Template

 

  1. Location of the Venture Capital Firm.

  2. The Business Stage (seed, growth, mature, etc..)

  3. The Form of Finance (equity, debt,etc..)

  4. The Type of Program offered (incubator, accelerator, etc…)

  5. How closely their portfolio of investments aligns to your company (investment similarities)

  6. Whether they are Hands On, or Hands Off with their investments. 

  7. The Value of their Investor Network for your venture. 

  8. Whether they Accept Venture Submissions. 

  9. Contact Information. 

 

Capital Investment Outreach Template - Download.

 

When determining potential sources of capital investment, do not underscore the value of the network of investors within the venture capital organization, or the broad network available to individual investors.

Early stage business will likely need a series of capital investments to support their growth, so always be on the look out for investors with valuable connections to other institutions, groups or industry leaders who can provide future rounds of financing. 

As previously expressed, a variety of venture capital sources exist depending on the stage of your businesses and the reason for your capital needs. Have an open mind and be willing to explore any capital source not matter how significant its investment potential may be. 

Below are a series of venture sources listed according to the order in which they should be approached for potential investment;

 

-    Friends & Family

-    Crowd-funding

-    Angel Investors

-    Small Business Loans

-    Venture Capital

-    Private Equity

 

When approaching sources of potential investment, particularly at the earliest stages, entrepreneurs be disciplined and present as many positive facts about their business as possible to defend the viability of their venture to their personal network of family and friends. 

Asking friends and family for investment can be an emotional challenge, but always try to treat it as a professional business opportunity.

Do anything you can to remain objective and level headed.

Exercise & meditate!

And, always approach the project you are working on with extraordinary amounts of positive energy. At this earliest stage, your goal should be to inspire as many people as possible with your vision. 

Entrepreneurs should also be aware of the specific periods during the calendar year that are approbate for initiating the process of sounding out sources of capital investment. 

The analysis applies to all rounds of investment from seed to late-stage growth including; Angel Investors, Venture Capital and Private Equity. 

‘Green Zone’ designates the most favorable periods while ‘Red Zone’ designates the most unfavorable periods. 'Yellow Zones' indicate periods that may be appropriate to approach investors for capital, particularly if a venture group has not completely subscribed the fund of the specific period. 

 

Investment Periods

 

 
 

 

As the table illustrates, the best times to approach investors begin around the new year, and at the end of the summer, which coincides with varying cycles of business activity throughout the calendar year. 

Entrepreneurs should be aware that building relationships with investors takes time and effort, and often much longer than initially anticipated. Maintain an optimistic view of the present and the future not matter how long it takes to nurture the investor relationship and gain financing. 

Applying patience throughout your capital raising efforts is a virtue. 

Because of the time it can take to secure investment, It is important to develop a clear strategy when approaching investors, and to build a sound understanding of the venture market climate of your current period. 

Entrepreneurs should vet how attractive their solution and respective industry is before attempting to approach a venture capital community. It may be the case that your business operates in a hot industry for investment, but it may also be the case that little investment is being made in your sector.

Either situation can dramatically affect how likely you are to raise venture capital. 

To develop a clear perspective to facilitate your venture capital strategy, consider the following diagram that illustrates the broad stages involved when attempting to raise capital:

 

Venture Capital Stages

 

 
 

* Term Sheets represent documents that outline the specific terms of agreement between  the entrepreneur and the investor(s). 

 

Determining the right source of capital investment and creating an effective strategy requires understand each investment stage that follows the initial contact with potentially interested investors.

 

Target Investors:

Represents identifying the right investor or investor group to approach. 

Initial Presentation:

If a meeting is securing, the initial presentation represents the first time you present the potential of your company to the investor(s). This stage is often called screening. 

Due Diligence:

Represents a period during which the investor(s) examine the viability of your venture and its potential for investment. This stage takes the most amount of time, and therefore patience. 

Term Sheets:

Represent legal documents that outline all of the important terms that will be involved in or define the deal. If you get to this stage it is likely that an investment will be made into your venture.  

Maintain Healthy Relationship:

After a deal is struct, contracts are signed, and a check clears, the hard work begins. Depending on the type of investor they will either be actively or passively involved in your day-to-day business. 

 

Entrepreneurs should recognize that even when a deal is achieved, the relationship with their investors(s) and venture capital source does not end. It is an ongoing process that requires a real effort to support, grow, and nurture over the long term.

As long as interests are aligned, meaning the strategic direction of your business, the relationship is likely to be positive and maintain a positive effect on the operations of the business. When interests become misaligned, there is potential for disagreements to erupt, and relationships to breakdown, which can negatively impact your company.

Cultivating a healthy relationships with investor(s) can make the difference between successfully growing your venture to the next stage or stumbling, potentially shutting down your operations, or in the worst case scenario, being removed from your leadership position. 

Moreover, sources of capital investment typically lead to one another. So it is critical to maintain a positive relationship with all the investors and respective institutions who become involved with your venture.

To better understand the investor's perspective throughout capital raising process, consider the following diagram that illustrates how the level of interest increases at each specific stage.    

 

Venture Capital Timeline

 
 
 
 
 

 

If each stage of contact with potential investors and the subsequent negotiations that follow are handled correctly, the investor’s interest will progressively increase until a deal is agreed upon, a commitment is made, and hard the work begins. 

Another way to think about it, is that the more encouraging information you provide about your venture, the more interested the investor(s) will be in making a deal. 

This reality is largely due to a combination of human and relationship building phenomenon. The more you know someone the more likely you are to build trust and believe in their potential.

Similarly, the progressive disclosure of more information about your business and the strategy you aim to adopt to go from start-up to industry leader will dictate how interested investors will be in your venture. Information disclosure fosters comfort and confidence in your ability to execute on your plan. 

While there is a certain methodology entrepreneurs should adopt during their capital raising efforts, it is important that founders remember that a certain degree of art involved.

Fundamentally, any investor(s) is making a bet on you as an entrepreneur. Your character, ability to express yourself, expertise in the field, background and vision, as well as your ability to work with others matters as much, if not more than the economic viability of your venture. 

Therefore, be honest and transparent.

Explain where you believe your business has weakness, and where you feel more or less confident about successfully executing on your vision. 

Invariably, if the investor is interested, serious and has a positive track record, they will want to help you fill the gaps. Mentorship is a huge component to their role, particularly if they are early-stage investors. Investors typically want to work with entrepreneurs who are coachable.

So exercise humility when appropriate, and be receptive to any and all ideas or inputs. 

Lastly, remember that the entire capital raising process takes time, so be patient, confident, and inspiring!

Don't loose sight of the end game! 

Capital Investment Outreach Template - Download.

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Send me a question: moebius@zenofwuwei.com