Raising Venture Capital

In this discussion, with a focus on the issues as it pertains to raising venture capital from a number of different individual investors or from a specific venture capital group that has an interest in your business. For most, it is important to note that if you do intend to raise venture capital from a venture capital company then you should people care to allow that specific business to make investment exceeds $1 million into your developing for expanding business. Many venture capital firms, unlike angel investors, are seeking to make significant investments in order to achieve a substantial ROI. In regards to the type of investment that a venture capital group is seeking, they are looking for businesses that provide, on a compounded year on year basis, a return of up to 35% per year on the capital that they invest into your new and developing business. Businesses not meeting this criteria then it may be in your best interest to look for angel investment capital for small business administration backed loans in order to further your business operations. Ultimately, venture capital groups are seeking to make substantial investments in  promising businesses, with the intent to take a substantial ownership stake in your business, and with the final goal of selling your business to a third-party for a significant earnings multiple or selling your business to the general public through an initial public offering.

 

Unlike angel investors, venture capital groups and venture capital investors have a substantial interest in quickly divesting the businesses they have made investments within. Again, is important to remember that if your business is not going to grow at a rapid rate then it is very possible that the venture capital group will definitely take control of your business with the intent to find an appropriate manager that can produce the 30% to 40% compounded annual return that they're seeking therefore on behalf of their specific investors.

 

As it relates to raising capital from venture capital firms, is imperative to note that you may need a number of documents in place beyond just a business plan in order to successfully secure the capital you need in order to develop or expand your business. These documents include a specific piece of work that showcases exactly how you intend to use the funds, the specific nature of your business, and your overall exit strategy so that the venture capital firm that is making a significant investment in your business so that they are able to see how they intend to work with their best and with a substantial profit. Unlike angel investors, venture capital firms have sourced a substantial amount of capital from third-party investors that are demanding a significant return on their money. The nature of venture capital, is that venture capital firms ultimately receive a fee equal to 1% of people assets managed by on behalf of investors also receiving 20% of the average profits have been generated through their specific investments into new companies, developing companies, and established businesses that show a substantial amount of growth potential.

 

The most common difference is that you'll immediately notice regarding venture capital firms as it relates to raising capital outside of angel investors is that they will be seeking to take a substantial share of your business in exchange for the capital need. As such, again, we meet strong recommend that you can focus your efforts on raising capital from small-business investors rather than venture capital groups as a professional investment firm requires a significant amount of investment in order to develop or expand its operations. As we also discussed earlier, angel investors are more willing to have themselves work and the mentorship capacity as it pertains to your business in addition to providing the capital that you need.

 

However, venture capital firms are unlikely to provide the same level of ongoing support and advice as it relates to your business. They expect you to be able to fully run your operations at full capacity, at all times, so that they can very quickly divest their interest in your business in a 3 to 7 year time frame generate a substantial ROI that they made into your business. As such, venture capital may not be for you if your business is in the early stages of its development. This, is especially true, if you've developed a new piece of technology that can develop at a low cost without having to sell a majority stake in your business from the onset of business operations. The future discussions, we will discuss the differences between a venture capital firm and an angel investor as it pertains to the amount of equity that you need to sell in order to raise the requisite capital that you need as well as the amount of control that you'll need to cede to a specific angel investor or venture capital firm as it relates to the more specific capital requirements. Prior to engaging in any capital raising activities, we further strongly recommend that you speak with any certified public accountant and attorney that can clearly lay out these specific nature of the type of investment that is best suited for you as it pertains to developing or expanding your business operations. Many people, as well as highly experienced entrepreneurs, feel that the only way in order to effectively launch or expand their business operations is to the acquisition of venture capital. However, this is not the case. There are many different types of financing that you can use in order to effectively expand your business operations concurrently taking a significant amount of control over your business as it expands over a three to seven year time frame. One of the common issues is often faced by entrepreneurs as they secure venture capital is that they become very concerned by the fact that many venture capital groups are seeking to take a 50% to 80% ownership equity interest in your business if they are willing to provide you with the capital that you need. This is one of the tremendous downside of seeking to raise venture capital in that the firm that is providing you with the financing they need ultimately wants full control over your business. In addition to not only providing the financing that you need, these venture capital firms will also want to have a controlling stake as it relates to your Board of Directors.

 

This will conclude our current discussion as it pertains to obtain venture capital for your business venture. In future articles, we are to continue discussing issues as it pertains to working with venture capital firms as relates to not only receiving capital you need to develop or expand their business but also as to the it ongoing issues that you'll face in regards to selling a majority interest in your business to a venture capital firm, having a number of directors on your board of directors that all workers into this other venture capital firm that you're working with, as well as other pertinent issues as they relate to venture capital investments.



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