Some businesses based on risky but dynamic ideas have difficulty obtaining financing despite the potential for significant growth. One option that may work well in this situation is venture capital funding. Here is some information about this form of financing that will help you determine if it is a good fit for your company.
The Basics of Venture Capital Funding
Venture capital is funding that private investors provide to small businesses, especially those that offer services or products considered high risk by traditional lenders. This financing is known as equity capital because the individuals, financial institutions, or firms providing venture capital look for high returns and a percentage of ownership. Numerous high-profile companies owe their success to venture capital funding.
Businesses Attractive to Venture Capital
Because venture capital firms undertake significant risks, they look for businesses that show outstanding growth potential. They are generally not interested in mundane companies that demonstrate slow but steady profits.
Types of Venture Capital Funding
Venture capital is best known as financing for startups. Seed financing is venture capital funding of the research and development of an initial concept or idea for an imaginative service or product, while startup financing helps a company in its early stages of growth. However, this funding also assists companies in further stages of development. For instance, first stage financing increases production and sales after a business’s service or product has already been launched, second stage financing helps companies to expand, and mezzanine or bridge funding assists in taking a successful company public.
Applying for Venture Capital Funding
You can apply for venture capital funding in a step-by-step process that begins with an introduction to a venture capitalist. If there is interest, you may receive a call to provide a presentation. If your pitch is successful, you receive an offer with tentative terms, and the venture capitalist will perform due diligence by investigating your company. Ultimately, you sign finalized documents and receive the funds.
Advantages of Venture Capital Funding
Although you may lose a portion of equity with venture capital funding, this is offset by the high amount of funding you can obtain. This enables your business to grow much more rapidly. You also benefit from the connections and expertise of the venture capitalist.
For more advice on venture capital funding, contact Signal Peak.