Is your business on the verge of explosive success and simply needs an injection of capital?
Innovation and entrepreneurship play a vital role in a growing economy. Growth capital can help transform business ideas into a thriving operation with the potential to disrupt the marketplace.
Venture capital is one of the most common types of funding, contributing $548 billion in assets under management. If a business is positioned correctly and qualifies for venture capital investment, then it has the opportunity to grow and make a profit.
There are a few necessary steps that need to be taken to ensure that a business has everything that it needs to be ready for a meeting with venture capitalists.
How Venture Capital Works
Venture capital plays a crucial role in the innovation life cycle. The funding is not intended to be a long-term investment, but rather a substantial, short-term injection of funds.
Venture capital can be offered via institutions or private investors. Investors contribute funds to a business in exchange for equity in the company. The intention is to build a long-term relationship as the business grows.
A company is theoretically ready to pursue venture capital if they tick the following boxes;
- A founding team exists
- There is a working minimum viable product (MVP)
- There is an engaged customer base
- The business demands high startup costs
- There is the potential to grow quickly and disrupt an industry
- The project is innovative at its core
A business that meets all of these requirements is on a path destined for success.
9 Things a Business Needs Before Approaching Venture Capital
Unfortunately, the lack of finances can be a significant obstacle stopping a business from reaching its full potential. Before sitting down with a venture capital firm, the following preparation needs to be done.
Clearly Defined Business Goals
Venture capital firms need to be convinced that the business has measurable goals that will lead to overall success. One of the main deciding factors for venture capital firms is that the business will offer a significant return on investment. For this to happen, clearly defined goals need to be outlined.
Corporation Registration Documents
Businesses that are incorporated in a tax-friendly state are more likely to receive investment than those that are registered in a tax-demanding one, although it’s not essential. Having these documents of incorporation is important to prove the registration of a business.
Proof of Patenting
Any good idea is worth stealing. A business with the potential to disrupt an industry needs to protect its intellectual property. Patenting intellectual property is one of the most effective ways for a startup to safeguard its ideas.
Evidence of Growth
A business doesn’t only need to have the potential to grow, but also a history of growth. Venture capital firms are more likely to invest in a company that shows a trajectory of growth and needs capital to reach its next milestone.
One of the most effective ways to show how an idea can work is to have a product demo to showcase its ability. At the very least, there should be a mock-up of the product. Walking into a venture capital meeting without preparing a demo could be a deal-breaker.
Once seated in front of potential investors, the pitch should have the power to secure the funds.
The following documents should be included in the pitch preparation;
- Elevator pitch
- Executive summary
- Business plan
- Presentation deck
Clearly Defined Capitalization Table
In the circumstance that growth capital is granted, the discussion of how shares will be distributed in exchange for the funds will follow. Investors want to know how much value they will receive in exchange for their contribution. Make sure to prepare this information in advance.
Budget Planning and Financial Overview
Receiving venture capital is a win, but not a guarantee. Assuming that venture capital is guaranteed can serve as a downfall. A detailed budget is needed to map out the finances of the business – with or without venture capital funds. The financial overview should highlight expenses and potential for profit.
Business Development Documents
If everything goes well, then the venture capital firms will invest the necessary funds in exchange for stock. Preparing due diligence in advance will keep the ball rolling without any delays. Documents such as financial statements, business structure, and key employees need to be assembled.
Get Funding Today
Once all documents are finalized and the business is ready for a meeting, then it’s time to take the next step.