Venture capital funds are pooled investments which are used to provide businesses with a source of financing. These investment pools or venture capital pools are from outside investors. The person that makes investments is called a venture capitalist. Since this investment is a high risk type of investment groups of venture capitalists form a firm wherein they will place all of their venture capital pools which is to be invested in various types of businesses that the firm carefully selects.
Engaging in a venture capital investment business requires for a great amount of money and for this reason most firms chooses to affiliate with big financial institutions like banks, insurance companies and others. Most pools have a fixed life of ten years; this is made so in order to lessen the exposure to management and marketing risk of venture capital firms. Ten years is the safest length of time in which they can be sure that to recover their investment.
Since venture capital investment is a high risk type of investment most firms would demand a seat on a company’s board of directors. This way they will be able to carefully monitor all business endeavours as well as every business transaction that a company is engaging at. There are also some firms that would go as far as taking over the management of a business especially when they feel that the present handler is not capable enough of running the business.
If you are an entrepreneur and is considering venture capital fund as your option for capital financing make sure that you ready yourself for some surprises. And as much as possible before signing any contract with a firm make sure that you understand everything there is to know about venture capital investment.
Venture capital funds makes excellent source of additional capital however in order to be successful in venture capital-raising you need first to prove to the venture capitalist that your business is worth their time and their investment. There are key issues that you need to carefully look into if you want to be given venture capital financing:
Numerical knowledge is an essential tool especially if you are to deal with venture capitalist. This pertains to your business cash flow requirements, current and projected gross profit together with your business net profit levels. It is very important that you know every detail about your business especially its finances.
Don’t forget to build a viable business plan. And include there the advantages as well as the potential markets that are open for your business. Likewise, it would be at your advantage also if you can document your achievements, goals for success as well as your potential for growth. You also have to clearly identify your markets. Venture capitalists appreciate a secure and feasible business plan.
Understand that venture capital investment is a high risk investment and therefore it is just fair for a venture capitalist to share in the ownership of the business. It would be best for you to be flexible and to negotiate for better deals. It would also be best if you would take pre-emptive legal causes for your protection. Aside from that the pre-emptive mechanism will give you the power to maintain control over your company.
Try to present your business plan in the most professional way possible. It is very important that you impress the venture capital firm.
It is always best to exceed the investor’s expectations of you and your business.
And lastly always remember that investors don’t have a great amount of knowledge regarding your products, your business and most of all regarding you. They are taking a huge amount of risks in investing in your business that is why they need to know whether you believe in your business because if you do so will they.