Venture Capital is reserved for companies that are in high growth, but have established themselves as likely to succeed. This type of capital doesn’t come into play until a 2nd or 3rd round of funding and usually in significantly larger chunks of a couple hundred thousand to a million dollars or more.
Venture Capital is most often used for growth after a model is proven, but sometimes can be used for acquisitions of weaker companies, merging them together to create a new stronger healthier company.
If you are a start-up business that has not received funding prior to reading this, you most likely would not qualify for funding from a Venture Capital or institutional fund. These funds tend to invest in late stage 2nd or even 3rd rounds where the business model has been proven out and the business needs capital to scale.
Venture Capital funds typically look for business that is scalable and offers high growth with substantial returns. The funds will purchase investments in several companies to spread the risk of the investment. They typically have experienced business people including CPA’s and executives with experience in startup and high growth companies to monitor the investments.
Venture Capital Funds often have specific mandates that the money be invested in certain industries or in geographic locations targeted by investors. This usually happens through non-profit corporation investments which may be mandated by State or Federal Government.
Venture Capital Rounds take considerable time for funding to complete, once the fund has said they will invest. They may tell you as soon as three months, but quite often it can take 6-12 months to complete funding from your first conversation. Start talking to them as early as possible and plan for the longest time to get to money.
It is not uncommon for these funds to ask for preferential treatment such as a board seat or a special offering to be made that gives the VC firm a preferred class of investment stock. They may even ask to place their own executive staff picks inside your business. You have to ask yourself if the money is worth allowing an outside entity to essentially take control of your business.
If you need immediate funding, you should first look at doing a business loan and then look for Angel Investors who are willing to seed the company.
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