Venture Capital
Sometimes, a great idea can be overlooked by traditional means of small business financing. Valuable products and services with the potential for quick and steady growth can fall to the wayside because of bad luck with traditional banks or lack of personal funding by the owner or founder. That’s where venture capital comes in. In this section, we explore venture capital and explain how it may be able to help you grow your small business—fast.
What Is Venture Capital?
Venture capital is a unique and generous type of small business or product investment that comes from a fund established by wealthy investors. These investors, which can be individuals or companies, are called venture capitalists. Venture capitalists come together to form a venture capital firm, which institutionally and professionally manages risk capital, or money put toward high-risk investments, such as budding small businesses and new products.
How Does Venture Capital Work?
The venture capital fund is usually a fixed amount, but a high one. That’s because an investment by a venture capital firm is an equity investment. If you’re the lucky business chosen, you’re going to get much more than a check from your venture capital firm.
Part of venture capital funding involves the partners maintaining an in-person, daily role in the management and growth of your business, while pushing the entity to grow as quickly and efficiently as possible. In this way, venture capital not only skyrockets the growth of your small business, it drives increased profits with a goal of going public in a relatively short timeframe. The growth is so quick, the business has to be supported by strong management and a sound business plan; otherwise, venture capitalists will pass on the opportunity.
Will Venture Capital Fund Your Business?
Because of the time, personal involvement, and heavy amount of money that venture capital firms invest in your business, they have high standards and a rigorous interview process before taking on new projects. In fact, the National Venture Capital Association (NVCA) estimates that only one out of every 100 ideas and business plans submitted to any venture capital firm actually receives funding.
If you’re thinking of submitting your idea or business to a firm, expect to be scrutinized for strengths and weaknesses in the following areas and more:
- The Amount of Required Investment
- The Shared Goals Between Your Business and the Fund
- Your Business Concept and Plan
- Your Management Team and Employees
- Your Target Market and Industry Health
Want more help planning or executing your small business plan? We’ve got a great place to start. Read more about Classifying Your Small Business in our next section.
