What Do You Know About Venture Capital Funds
Have you ever wondered what venture capital is and what it is for? Well, venture capital is capital that is allocated for business ventures. If you are an entrepreneur and having a small business is being too difficult for you to run by yourself, you might think of obtaining venture capital or private equity to expand your business and turn it into a big company. To do this, you will need to know the difference between venture capital and private equity.
Venture Capital
Venture capital is funding that is usually given as an investment by a venture capital or VC firm. These VC firms could be financial institutions that are strictly dedicated to investing in entrepreneurs who have an innovative product prototype or service that has great market potential. Investing in entrepreneurs is not charity work for VC firms. In investing, VC firms also expect to get suitable returns on their investments. Other VC firms can also be an investing arm of expansive corporations that seek entrepreneurs who have a product or service that could benefit the business of that particular corporation. Banks can also provide venture capital as well as private equity.
Private Equity
Private equity is basically the same thing as venture capital. The difference is that venture capital is distinguished to be money provided by institutions or private investors who have strictly allocated the funding for investments in business ventures, whereas private equity is money that is from private individuals. Equity is also capital, but it does not necessarily have to be allocated for business ventures. Private equity can also be used to fund charities or other ventures as well.
Funding Rounds
If you are intending to become an entrepreneur, you need to know a few things about how venture capital is administered. Most VC firms are very choosy about whom they invest in and in what stage they invest in. Some VC firms like to invest in the early stages of a company, whereas others like to invest in the later stages of a company when a company is more mature and well-established. Others yet like to invest in all stages of a company’s life. When a VC firm invests in a company, it usually invests in funding rounds, which are periods of funding that are labeled as follows:
1. Seed funding is the very first funding round that a company receives. Seed funding is the funding that actually does what its name implies. It sows the seeds of the company. It is the vital capital that allows a company to launch its product to market and accept the basic business needs accomplished
2. Series A funding is a funding round that is invested in a company that is still in its early stages but already has its feet on the ground. This round of funding usually follows the seed funding. When a company receives series A funding, it already has a product that is on the market and aims to grow. Series A funding can be feeble to expand a company’s product line or advance marketing efforts.
3. Series B funding is a funding round that is invested in early stage in companies who are growing at a steady pace. Funding from series B financing usually goes to ramp up sales and marketing efforts in new areas and expand sales into new markets. Usually companies that receive series B funding are looking to expand their marketing efforts into recent geographic locations.
4. Series C through F funding is received by companies that are already well-established. These are companies who are in either their middle to late stage companies. These funding rounds are often invested in companies that provide large returns for their investors.
5. Mezzanine funding is a funding round for weak companies that are contemplating to be publicly traded in the stock market.
How To Apply for Venture Capital
Applying for venture capital can be a very challenging process. There are many factors that can come into effect whether or not a particular entrepreneur can win investors or not. Some of these factors are as follows:
1. Poor economic times tend to scare investors. Today, the economy is not the greatest in the world and many people are less eager to invest, fearing that they could loose out and not have positive returns. Other investors, however, who are more daring to take risks, tend to invest most during dreadful economic times. In fact, it was Warren Buffet who said “When people get greedy, I salvage scared and when people get insecure, I get greedy.” What does this exactly mean? Simple. During tough economic times, the majority of people, including financial institutions, like to be tight with their money and tend to exercise less. This causes demand to decrease and in turn can generate opportunities that would not necessarily be there during good economic times.
2. Product prototype can be very important in winning investors. Many investors like to see a product prototype that is unique and can meet a need or set a trend that can go viral in the marketplace. If your product prototype is a current invention and has a patent or patent is pending, that can be a good distinct in the eyes of most investors.
3. Exceptional Service for those who are entrepreneurs in the service industry can be key to net that needed investment. There are many companies that provide different services; from internet-based services to physical services. Your service needs to stand out. It needs to have some swagger to it that investors can see good potential in it. If you have a service that can meet an unmet need, that’s even better. Many internet entrepreneurs now develop something known as SaaS or Software as a Service. This is actually software that is used online and provides a service for all kinds of businesses or individuals. SaaS can be faded in the business service industry to do everything from managing security to payroll and time. SaaS can also be used for the individual consumer. Some consumer based SaaSs can be faded to share photos and videos to friends and relatives, etc. The SaaS is a big industry nowadays and if this is something you plan to do, it must stand out to win an investment.
4. Company management teams and how they perform are crucial in winning investments. If your management performs poorly and you are loosing more money than you are gaining, it will not win you an investment. On the other hand, a management team that is disciplined and runs a tight ship is more likely to win investments from investors. Remember, investors invest in your company because they are looking to profit from your business. They want to peek how you are doing in the marketplace. If you beget a profit, your investor will also make a profit.
5. A good business strategy is impartial as crucial as what is mentioned above in number four. How do you plan your business strategy? Can it be effective? Do you have an exit strategy if your business fails? All these are vital to investors.
What is an Exit Strategy?
An exit strategy is a strategy to get out of your business if it is failing. Some exit strategies can range from filing for bankruptcy, though that is not a good one, to selling your company out to another more sound company. Corporate mergers are another common exit strategy.
What ever you do, presenting yourself, your management team and your product or service is crucial in winning the venture capital you need to build your idea or business into a strong company.
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Filed under Stock Bankruptcy by on Apr 20th, 2011. 
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