How to Attract Venture Capital
There's a saying in Silicon Valley: "If you have to ask if your company can get venture capital, then it most likely cannot." Venture capital seeks out companies that are primed to take off, if only they had the right amount of cash in the bank.
Find VCs that invest in your industry and focus on them. Every VC firm has a target niche that they invest in. They may focus on specific industries, certain sized companies, geographic boundaries, or an ideal investment size. Or it could be any combination of these factors. Most venture capital firms clearly spell out their target investment profile on their websites. Before you contact them, save everyone's time by ensuring you fit that profile.
For example, Salesforce Ventures recently created the Canada Trailblazer Fund to help cloud-based startups in Canada. They invested $100 million in a venture capital fund focused on tech startups. Based on their geographic preference for this investment, if your business is focused on United States consumers, for example, this fund is likely not for you.
Approach VC firms one at a time. Venture capital is a small industry. Word will get around if you are sharing your proposal with anyone who will listen. Be selective. Scour your personal, educational, and professional networks to uncover any relationships you may have with the firm. Your best chance of being able to present is a warm introduction.
Personalize the message that you send to a venture capital firm. Nobody likes to receive a generic email or a templated message. This money can make or break your company. If you want it, you need to put in the effort.
What to Expect When You Accept Venture Capital
When a VC firm invests in your company, your business will never be the same. Get ready for just about everything to change.
Your ownership will be diluted.
Accepting VC money means giving up equity in your company. In order to increase the size of the pie, you must be willing to distribute some of the slices. The increase from pre-money valuation (before the VC invests) to the post-money valuation (after they invest) will determine how much stock the venture capital firm receives. These shares come from existing shareholders and are diluted in the process.
Venture capital has an opinion on how to run your business.
When you accept their money, the venture capital firm gets the right to an opinion about how your company operates. Usually, this is managed with one or more of your company’s board seats going to a representative of the venture capital firm.
This expertise can accelerate your company's growth. These professionals often have industry connections and knowledge that your business needs. Their insights can help you avoid mistakes and realize opportunities that an untrained eye may not notice.
Is Venture Capital Right for Your Business?
This decision — should your company try to get venture capital? — requires soul-searching and research. Venture capital can give your business the capital it needs for the next stage of growth. Equity investments are often a preferred way to grow without the debt burden of bank loans.
With proper preparation and a solid vetting process, your business will attract a venture capital partner that can help it grow to its next level. Just remember that not all cash is the same shade of green. Be sure to find capital that is best suited for your stage of growth and that provides the industry expertise that you need to succeed.
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