Venture capital is one of the most popular forms of investment capital among startup companies. Unfortunately, very few entrepreneurs have an in-depth understanding of how the venture capital industry actually works or how it relates to their desire to raise capital.
A quick primer on the fundamentals of venture capital funding. Learn how venture capital funding works and how big the universe is for venture capital as a whole.
The following guide will help you understand the mechanics of the venture capital industry, the process for identifying the right venture capital firm to approach, and the actual pitch process used by entrepreneurs looking to raise venture capital.
Understanding Venture Capital
What’s the difference between an associate and a partner at a VC firm? What types of deals do venture capitalists get most excited about? The better you understand how a venture capital firm functions, the more likely you will be to find the right fit.
- What is Venture Capital Funding?
A quick primer on the fundamentals. Learn how venture capital funding works and how big the universe is for venture capital as a whole.
- How Venture Capital Firms Work
Venture funds have more than just a profit motive. They also have specific time limits in which you must return their capital and particular industries where they expect to get it.
- What a Venture Capital Group Invests In
A venture capital group has very specific target investments that they pursue. They are looking for big markets, great traction, and an impressive management team.
- Profile of a Venture Capitalist
Not every venture capitalist in a firm is equal. There are worlds of difference between an Associate and a Partner. You’ll need to understand the role of each person within the firm to know who you should be trying to pitch.
Finding Venture Capital
We take some of the frustration out of identifying the right venture firms to target from the huge number of potential candidates.
- Searching a Venture Capital Network
Starting your search through a venture capital network begins with three criteria: industry, stage and location. After that you need to start digging into their portfolio investments to see if there is some prior investing history in your favor.
Raising Venture Capital
Once you’ve got your list of target firms narrowed down, we walk you through the fundraising process so that you understand what to expect and what to be prepared for.
- How to Find Venture Capital
Making the proper introductions requires a great elevator pitch and ideally a warm introduction through a trusted connection. You’ll want to start out by trying to find venture capital firms that you have a mutual relationship with or, short of that, some sort of common interest that makes you stand out a bit.
- How to Raise Venture Capital
The process to raise venture capital starts with your initial introduction and then continues through the partnership. You’ll likely start by pitching an Associate, make your way to an interested Partner, and finally pitch the entire partnership to make a decision. The venture firm will then issue you a term sheet and begin due diligence.
- Pitching Venture Capital Firms
The requisite documents you’ll need when pitching venture capital firms include your pitch deck, financials and a pitch profile that you can link to in emails. Make sure you have all of these documents ready before you start sending out introductions.
- Common Venture Investment Terms
There are plenty of venture investment terms that can confuse you, but only a handful that you’ll absolutely need to know to navigate your way through your initial meetings. Understanding your valuation, the impact of dilution, and the use of a stock option pool will all prove useful going into the discussions.
Also see: Venture capital vs. Private Equity