If you are a startup owner, you have an idea about the different types of funding available for startups. But do you know which funding is appropriate for you?
Are you opting for venture capital for startup funding?
If you are, we are here to guide you on how to get your startup funded through venture capital. Venture capital is a secure and resourceful startup funding option to help your organization raise funds and gain expert insights and strategies to grow your startup. This blog will discuss how to get venture capital funding for your startup. Let’s get started!
What is the need for venture capital funds?
Venture capital firms provide startup funding and resources in return for equity and control of the board. It is one of the most known forms of startup funding. India stands fourth in venture capital funds, following the USA, China, and the UK in the first, second, and third positions, respectively (source).
But why are venture capital funds so popular? Following are a few things you can expect from venture capital for startups:
- First, you might have guessed, capital! Venture capital firms provide capital (funds on a large scale) to startups to carry out their operations and grow.
- The venture capital firms often specialize in specific industries. They provide startup mentorship and guidance to help them make growth strategies and other crucial decisions.
- The venture capitalists have a recognition in the market. Therefore, if you get startup funding from reputable venture capitalists, you can boost your brand image and use it in your marketing strategies.
- Venture capital firms also have a network and business connections. You can grow your network and make business partnerships through them.
Venture capitalists are crucial for startups to raise funds and get industry guidance. However, finding a venture capital firm and securing funds is challenging.
A step-by-step guide to getting venture capital for startups
1. Make a concise business plan
Before venturing out in the market for startup funding, you need to prepare, which starts at home. You have to prepare a thorough business plan for your startup, outlining your business model, aka your product/services, your financial planning, market trends for your product, potential profits, growth
strategies, and more.
The business plan is like an insight into your startup and its potential. Include relatable and accurate data to strengthen your business plan. It helps you build trust and get a venture capital firm’s interest.
2. Research and shortlist venture capital firms
Did you know India has 1.76K venture capital funds (source)? So, finding the right venture capital is crucial for your startup because it helps you grow your business. However, despite the number of venture capital firms, only some can fund you. Every venture capital firm specializes in an industry and dedicates a fixed number of funds to specific markets. It would help you find venture capital in your area and thoroughly research it.
Once you find a decent number of venture capital firms, you need to shortlist the firms. Shortlist the venture capitalists based on their industry relevance, market presence, network, expertise, company size, overall market image, and more. It would help if you decided what you wanted from the venture capital firms and then reached out to those who got shortlisted.
3. Create an effective pitch deck
Now, this step is crucial. Remember, venture capital firms have limited funds and many options. So, what you offer them makes a lot of difference. A pitch deck is a presentation about your startup: idea, problem you solve, business plan, startup members, market analysis, market and financial goals, and more. It should show how they can benefit from your startup.
Remember, the startup pitch deck is to cater to the venture capital firms and give them value for investment. So, focus on highlighting your strengths in the market and how you can make profits and give them high ROI. Here, you must clearly state what equity you are offering for a certain amount of venture capital funds.
4. Find connections through networking
If you are an entrepreneur or a business person, you know that network is your net worth. A reference can help you reach the venture capital firms better. A personal reference can get you ahead in the game and give you a chance to showcase your pitch deck. Therefore, attend networking events to connect with venture capitalists firms and other industry people and leaders. Your network can help you find better venture capital firms.
21By72 organizes an annual networking event, Global Startup Summit. It helps investors, startups, and entrepreneurs to gather for investment, learn, and grow their network.
5. Get your papers and permits sorted (due diligence)
Now, after a successful pitch, you will face due diligence. Simply put, the venture capital firm conducts thorough research about your startups. They check your legal papers, financial transparency, office inspection, and more to verify your whereabouts and legitimacy. So, keep your sheets clean and organized. It helps build trust and increases your probability of getting venture capital startup funding.
6. Discuss the details of the venture capital funds
Once you get the green flag from due diligence, you can discuss the details of your deal. Here, you must ensure that all the details discussed in the pitching are cleared and dealt with. Thoroughly examine the agreement regarding equity share, control in the board, capital and guidance expected, and more. It helps resolve doubts and confusion before signing the deal for venture capital funds.
Conclusion
Venture capital offers large sums of capital and expert guidance in return for equity. It is one of the most popular strategies for startup funding. Here, we discussed a detailed guide on approaching venture capital firms.
Start by preparing a thorough business plan with insights about your business. It helps you present your startup idea and how your firm will operate. Focus on delivering ROI and how the venture capitalists can benefit from investing in your startup. Now, you must find a venture capital firm that aligns with your goals. For example, research which industries they specialize in for expert guidance, their market value for credibility, the equity they demand, and more.
Shortlist a few and schedule a pitching session with them. Create an attractive pitch deck to secure the startup funding and negotiate the investment details. Now, if they agree, they will conduct a thorough due diligence of your company, so keep the paperwork of all the departments sorted. Once the deal is confirmed, cross-check all the conditions before signing the final agreement papers!
FAQ
1. Who is eligible for venture capital funds?
In general, venture capital firms provide funds to nascent-stage firms. This means they invest in startups that are starting but have some track record, possibly an MVP, and a strong success trend in the future.
2. What is the difference between angel and venture capital startup funding?
Angel investors are HNI who want to invest in startups. On the other hand, a venture capital firm is an organization that pools money from a diverse category of investors with the promise of a steady return. Venture capital invests in promising startups to increase profits.
3. How long does it take to secure funding from venture capital firms?
The time to secure venture capital funds depends on your research, business plan creation, shortlisting and pitching to venture capital firms, negotiation, and due diligence. Obtaining venture capital funding may take three months or even a year.
