Venture Capital is perhaps the most misunderstood area of business financing today. Today’s venture capitalists are typically like cautious bankers rather than the risky risk takers of previous years.
Venture Capitalists – Just how are they different from traditional bankers or investors? These venture capitalists buy a business with the hope of finding multiple partners who will provide seed money and invest the profits from sales into their own ventures. They are the key linchpins in an effective system for satisfying the demands of private investors looking for high returns on investment, entrepreneurs seeking capital, and the entrepreneurs looking to start new businesses. The venture capitalist is typically not a high-powered financial analyst; instead, he is a highly motivated and organized team of professional entrepreneurs, bankers, investment managers, and financial analysts who are always ready to work with you, but who need to be kept in check.
Because of this, you must follow the lead of venture capital firms when working with them and not your own. They set the tone for the venture capital industry and the way venture capitalists work. They do the legwork; they look at the numbers, look at the balance sheet, and talk to your competitors and other potential sources of capital. In the end, it’s all up to these people, which means that you’ll need to follow their lead.
How do you find a venture capital firm? A good place to start is through your current bank. If your current banker isn’t working with a venture capital firm anymore, he or she may know someone who is. Also, you can speak to friends or family members who have been successful in this field and ask for recommendations. Finally, you can browse the Internet for online venture capital sites that will list venture capital firms by city and state.
What else should you know about how venture capital works? As you may already know, venture capital is usually provided by private investors who are looking for a high return on investment. While you will find some venture capitalists who are primarily looking for quick, easy money, more traditional companies are more interested in long term business relationships and partnerships. They want a long-term relationship based on mutually beneficial partnerships with successful businesses. If you can demonstrate to them that you have a product or service that will be useful to their target market, and that you can show them that you can use your new product or service to solve a customer’s problem, they will be more likely to invest in your business. Then if you can demonstrate to them that you’re just another new start up that has no real value.
How do you find a venture capital firm that provides the right type of investment for your particular business? It’s important to realize that there is no one right type of investor for every venture capital firm. That being said, you should be aware that venture capitalists have a diverse portfolio of investments available. Some will look at your business concept as a stand alone business. Others will look at your business model as part of a bigger venture capital plan. Still others will look at the structure of your existing business to determine if it is viable and profitable.