What is Venture Capital?

How to Attract Venture Capital

Attracting venture capital generally means a business is quickly growing, has been validated by experts, and has generated a buzz with customers. The process of attracting venture capital usually involves:

• Creating a Business Plan: Startups often have limited resources and hence, need to have a well-penned plan that outlines the roadmap of the business.
• Gathering Support: In order to attract venture capital, entrepreneurs must be able to demonstrate the enthusiasm of some key stakeholders, which may include influential business partners, potential customers, and even industry experts.
• Networking with Investors: It is important to be aware of current and prospective venture capital firms, as well as the investors who manage them. Startups should connect with them, and attend networking events related to venture capital.
• Communicating the Benefits: Once the startup has a viable business model and a promising future, it is key to communicate the benefits of investing in the business in an investor deck.

The Pros and Cons of Venture Capital

Venture capital can be a great way for entrepreneurs and startups to get the resources they need to scale up their businesses. However, there are also some potential cons.

PROS

• Growth-Oriented Capital: One of the main advantages of VCs is that they focus on growing the business, instead of short-term gains.
• Validation: Getting the VCs to invest, implies to the customers that the product or service has been vetted and is worth investing in.
• Expertise: A VCs’ portfolio of investments often gives them the experience and the network to help a startup grow.
• Additional Opportunities: VCs often bring more than just money. For instance, access to company advisors, new business contacts, and valuable professional advice.

CONS

• High Expectations: VCs expect a high return on their investments and may have a mindset of “all or nothing”.
• Lack of Control: When taking venture capital, business owners can expect to hand over a portion of control to investors.
• High Competition: There are a limited number of venture capitalists in the world and the competition for their money is intense.
• Insufficient Resources: Especially for small business owners, they may not have the resources or knowledge to adequately compete for money.