We assume everyone understand what venture capital actually is. However, for those of you who are apparently new to the fund raising and start-up scene, this blog post is designed specifically for you!
Most start-ups begin their journey as a mere idea, graduating to be a pen and paper discussion, and then as an elevator pitch in a dragon’s den. This is when they can seize the opportunity to grow into billions of pounds of revenue. Initial bootstrapping is inevitable, however you can soon be flying off the charts once you secure an investment from a venture capitalist.
Venture capitalists can help the company through every stage of its growth. From company’s very early stages, to private equity capital through its middle stages, mezzanine capital which is typically a bridge to the next stage, which is an initial public offering or some other liquidity event.
In this post we will just focus on the early stages as they are truly the venture capital stage.
THE STAGES OF VENTURE CAPITAL
There are a number of stages even within the venture capital. Investors focus on these various stages to determine the amount of money to be waged in to that particular company.
As the name itself suggests, this round of funding exists to take a company off the ground! Minimum amount might revolve around £0-£1M of revenue.
In this stage, the venture investors focus on taking a company that has successfully proven its concept, and help them to accelerate their sales and marketing efforts; think $1-$10MM of revenues.
In this stage, venture investors basically pour kerosene on top of a company that is already “on fire”; think $10-$50MM of revenues.
VENTURE INVESTOR EXPECTATIONS
Venture capital can be deemed as the most risky investment an investor can make. The odds of a company successfully pulling it off to profit is one in ten! However, a moiety of investors are fortunate enough to get their original investment paid back, and many investments are simply written off in their entirety.
Therefore, from an investor’s perspective – you should be fully aware of what he/she is looking for. Do not emphasise much on your abilities, as you do not have the next Facebook or google on your hands.
WHAT VENTURE CAPITAL IS NOT
Just like it is risky for an investor to invest in your company, it is equally risky for your company to receive venture investment. As any investment that has the potential to “strangle hold” the company in the event of it not performing according to its plans, is a recipe for disaster for everyone who is involved.
With a requisite of paying expensive interest rates in cash, and restrictive financial covenants based on your balance sheet metrics are clearly not rational in the venture world. The base business itself suffers from too may success uncertainties, layered with unforeseen hurdles for the business to cross. This might lead to bankruptcy, and ultimately zero return for everyone involved.
Therefore, if you own a start-up, or are planning to secure series funding, we would suggest that you find the capital that will best suit your company’s stage of growth.
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