Venture Capital Funding

Accessing capital via venture capital funding has turn out to be nearly an art type. There are little players that finance up to $500,000 and bigger players that finance up to $25,000,000 or much more. There are industry particular firms and there are firms that concentrate on a specific area, nation or continent.

Even though you want to contact as numerous potential investors as possible, it is good practice to do your research and preparation initial, then contact numerous possible investors. No sense sending your business plan or executive summary to firms that only fund $5,000,000 or more if you are only searching to raise $1,000,000. Likewise, it doesn't make sense to send an executive summary and then invest hours or beneficial time creating follow-up calls to venture capital firms that only fund technology or biotech companies if your company is in the retail business.

More than the years, the terms "venture capital" and "private equity" have become blurred and intertwined. My suspicion is that venture capitalists got tagged with the nickname "vulture capitalists" and decided to begin using the much less offensive name, "private equity investor". Following all, who would you rather get funded by a vulture capital firm or a private equity firm.

I think an simpler distinction, nevertheless, is that venture capital much more often relates to funding provided to begin-up companies or very young businesses, whereas private equity refers more to funding supplied to more established companies or companies in a growth stage or looking for mergers and acquisitions.

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Venture capital funding, when applied to these start-up or young businesses is therefore extremely costly since the company most likely has extremely small revenue if any and probably needs the financing to survive. If that is the situation, of course the investor is going to dictate some very demanding terms and require a big piece of equity in your company because of the higher risks involved. Searching at the situation from another point of view, if your company is in no position to bargain and survival depends on that financing, then you would be foolish not to take the financing. Management should try to steer clear of the situation by raising capital nicely in advance of when it will be needed. Keep in mind that when it comes to raising funding for a company it generally take much longer to raise than anticipated.

There are some things you can do to allow your management group to recapture some of its equity, such as a claw back. This allows you to buy back a small portion of the equity they investor bought if management is able to hit particular milestones in terms of gross or net revenues.