How Do You Get A Venture Capitalist To Invest In Your Business?
/The road to becoming a successful entrepreneur is never easy, and the challenges start from the very beginning and last till the end. Having sufficient capital is one of the many key aspects of running a business. However, many aspiring entrepreneurs struggle with having sufficient capital funds for their start-ups, or even for expansions.
If you’re looking to pursue any sort of funding, the first step is making sure you’re well-equipped enough to handle current market requirements.
After all, the saying is “they invest in you first, then your business”. To level up your industry knowledge and competency click here for more articles like this.
Seed Investors Vs Venture Capitalists
This is where Venture Capitalists and Seed Investors come into play, but even then, they can be hard to find and even harder to convince to invest.
Seed Investors are private investors who seek to invest in the early stages of a business, otherwise known as the start-up stage.
These investors typically lend on more favourable terms and are also known as Angel investors. However, these types of investors come rare and many entrepreneurs looking to secure extra funds may find more success in getting investments from Venture Capitalists.
Venture Capitalists, unlike Angel Investors, are highly driven by profit and look to make a favourable return on their investments. In other words, they provide capital to high-growth potential companies in exchange for a percentage share of said company.
However, investing in early-stage ventures comes with big risks. After all, only a few businesses get to survive through the tough initial stages where you are constantly battling negative returns on sales and experimenting with different business models.
Yet, Venture Capitalists still fork out millions of dollars in investments in faith that a business can yield positive returns for them. So what exactly do they look for in a new venture when making an investment? Read on below to find out some of the key considerations that Venture Capitalists take into account when choosing where to place their money.
Excellent Management
Management is by far the largest component of a business structure that can make or break a company. Every start-up or company planning to expand runs on a proposed business model to grab a share of the market, and it is up to the management team to execute said model and plan. The management team stands at the helm of the business and successful businesses are built upon experienced managers who can deliver quality and more importantly, generate returns for investors.
Inexperienced managers are often seen as a risk that these investors are unwilling to take on. A Venture Capitalist looking for investment opportunities will be looking deep into a potential company’s management team for key personnel who are qualified and experienced enough to play central roles in the business.
Hence, companies looking to attract potential investors to their door should consider bolstering their management team with people who have had experience working with successful businesses before.
Market Size
Venture Capitalists don’t just look for businesses that can penetrate a market. Having a large enough targetable market is just as important to these investors. Being able to show potential investors that your company can generate revenue from a large market will grab their attention before they look into the other details.
Venture Capitalists are incentivised by profits, hence, they look for businesses entering large markets that can quickly grow their sales. This ensures that the company can generate equally large returns that the investors have a share in.
Investment is a game of risk and investors are more willing to invest in companies that can provide some sort of safety for their investments. Ideally, an investor would want a business to rise up the market and take the top few positions. However, failure to penetrate deep enough and generate sufficient growth is a very real risk that investors are aware of.
It is due to this reason that large markets are often preferred by investors. Large markets greatly increase the chance of a trade sale from occurring, which is when a larger company acquires a percentage of the smaller company as part of a strategic move. This can still generate profits for all shareholders involved, including investors. Furthermore, these Venture Capitalists can then safely exit their investment with profits.
As a company working to secure additional funds from Venture Capitalists, it is crucial that studies on potential consumer willingness to buy and current market sizes are made beforehand.
Quality And Competitive Products
However, entering a large market also means that a company has to be able to deliver quality products that have a competitive edge over other players in the industry. Products that are able to address a problem and offer a unique solution create a need for said product by consumers.
Investors are constantly looking for these types of products as they reduce the probability of direct competitors due to the high barriers of entry created. This allows the company to capture larger shares of the market and in turn, investors end up with even larger profits.
Risk Assessment
Investing involves lots of risks and part of the craft involves being able to assess the risks you take and mitigate them. Venture Capitalists expect potential companies to be able to justify an investment. This includes looking into several factors such as the ones mentioned above. Not only that, but they will also be interested in knowing what has been achieved by the business and what future plans and goals there are.
Venture Capitalists evaluate companies with certain principles in mind to be able to mitigate risks to maximise potential earnings. This includes a wide range of matters, including legality concerns, funding, product need, and even exit options. Some of these factors such as product quality and competitiveness, alongside trade sales have been mentioned above.
Legal issues are also something that investors take great concern about, and so should companies looking for funding. Legal and regulatory issues can set companies back years, and even bring down the entire business before it can even grow. Hence, it may be wise to invest in legal expertise to settle legal matters before looking for a potential investor.
Conclusion
Investments can yield high returns, but at the same time, carry a lot of risks. With this in mind, it is important to know that Venture Capitalists are very particular with their requirements and standards when it comes to investing in a company. Knowing how these investors make some of their decisions will be particularly helpful in bolstering weak areas of the company to be able to bring in funds from investors.