It is a given that you can’t start a business without finance! While there are several avenues you can explore for finding money to fund your start-up businesses, chances are these avenues may not provide you with the kind of bulk financing your ‘big’ business idea needs. That’s where venture capital comes in.
What is venture capital?
In simple terms, venture capital (VC) is a fund created with large sums of money, specifically for investing in big or unique business ideas. Usually venture capital funds invest their monies in the latest cutting-edge ideas or new frontiers in science and technology. For example, a few years ago dotcom companies or start-ups were the darlings of the VC funds.
How does it work?
A venture capitalist is someone who is very savvy at raising money from various sources, primarily from private wealthy people, pension funds or other institutional resources. Once a fund is created, a detailed plan is drawn up to invest the money in specifically selected companies or businesses. Once the money is invested, the VC fund expects returns on its investments to come via the invested companies growing and becoming public. The VC makes its money by selling stock for the company’s IPO and plows back the monies received back in to the fund. Once all the returns are in, the money is distributed among the original investors as per the percentage of contribution.
Where will you find venture capitalists willing to invest your business?
There are several resources you can use to find venture capitalists; some of these are listed below.
- Directories of venture capital firms – some are free, whereas others will come at a price!
- Business associations and chambers of commerce in your local areas – while you may not find a list of venture capitalists per se, these organizations will provide very helpful information which will lead you in the right direction.
- Business magazines, journals and other print media.
- Business-related websites on the internet, especially if you type in “venture capitalists” in the search engine fields for new searches. Refine your requirements as you go (narrowing the options down by industry is a good start) and you’ll still find numerous listings to pick and choose from.
- As an alternative to venture capitalists, who typically run funds, you can also look for an “angel investor” – a single wealthy individual who is willing to invest money in business start-ups.
However, before you go looking for venture capitalists or angel investors, it is important that you complete your homework first. For starters, prepare a business plan and keep refining it as you collect more information on similar types of businesses, success and failure rates, reasons why your business venture is worth the time and investment and so on. Once you have this in place, get started on looking out for venture capitalists using the resources listed in this article. Don’t expect to land a venture capitalist at the very first attempt. This is a job which will require quite a bit of time and effort on your part, but once you’ve succeeded in attracting the attention and money of a venture capitalist, the sky’s the limit, as far as your business start-up is concerned! Happy hunting.