Venture Capital for Startups: Complete Guide

Securing venture capital involves a structured process of fundraising that would attract only qualified investors and get across the potential of a start-up to gather the capital required for its growth. All the steps are important to build the overall investment story that will help attract investors. Here’s a breakdown of the stages involved:

Prepare a Compelling Pitch Deck

The pitch deck is the cornerstone of initiating any venture capital sourcing activities and is the first thing startup VC will get to see about you. This should include:

• the description of the problem your startup solves or the need it fulfills; 
• the proposition you are presenting;
• market size;
• business proposition;
• competition and basic financial metrics.

Furthermore, even a great pitch deck must be narrative and explain not only how much and how your business can add value to investors, but also why you and your co-founders believe in the success of your business. Support your ideas with graphics, case studies, and short statistics and always try to remember that having a good pitch deck at your disposal can increase your likelihood of getting funding greatly. Check our pitch deck consulting page for more details.

Build a Target List of Investors

Finding investors is a very extensive and systematic process since investors vary depending on the kind of business being ventured. First of all, establish the names of the venture capital firms or individual investors that fit your industry or those who invested in companies at the same level of growth as yours. Such criteria include:

• the investor’s focus area will define the type of investment opportunity that the investor targets;
• preferred stage of investment will help determine how ready an investment is before the investor can invest in it;
• geographical reach will help determine the location where the investment opportunity is located within the country and the overall portfolio of the investor.

Create your list of these specifics, and any other person who may know them or others that could provide referrals. Going out for investors who know your industry of business brings high chances of attracting them more so they have something to offer to the growth of your business through advice, connections, and knowledge.

Initial Meetings and Investor Pitches

Following the creation of a target list is to schedule meetings in which your pitch will be delivered. These meetings are important because this is when you can show your pitch deck, talk about your start-up opportunity, and answer any questions the investor may have. 

Be as ready as you can be – make sure your business proposition is completely detailed, and presented with metrics if available, and you should well describe how the funds will be used. Subscribers will expect not only the profit forecast but also the expertise, the business awareness, and the strategic plan. You need to ensure that they come out of the meeting with one thought in their mind, that is the opportunity you’re offering and that you are capable of making it a reality.

Due Diligence Process

If there is interest after the pitch is presented the investor will go on to do their due diligence to ensure that the information given to them is correct. It is usually an extensive analysis of your business, financial records, legal compliance, market niche, patents, and more crucially, business strategies, and policies.

There might be a need to present documents like financial statements, legal papers, and even customer information to obtain precision and study the risk levels. Analyzing due diligence it would be sensible to state that sometimes it may be a true test; therefore, it would be helpful to be clear, methodical, and keen on providing every piece of necessary data.

When the due diligence is successfully done it makes the investors have more confidence in you and also depicts professionalism and prepared to take the company to the next step which is closing the deal.

Finalizing the Deal

Once due diligence of venture capital startup funding is complete, it is now possible to sit down and agree on the various investment conditions. This usually entails writing the term sheet and the matters that arise out of the investment including the amount that is intended to be invested, the percentage ownership, and the composition of the board among others. When that is done, legal advisors will draft up the agreement and the money will be channeled to your startup. Such a stage signifies the development of a strategic partnership which will then proceed to the growth process. VC fundraising is not an easy process but with the right planning and determination or business consulting services it opens doors to great partnership and the much needed capital for a startup’s vision.

Venture capital is a powerful tool for startups seeking rapid growth, it provides the necessary funds as well as expertise and connections to grow in the right way. Despite the challenging nature of obtaining VC funding, awareness of all the stages of investment—preparing the perfect pitch deck all the way through due diligence—enables the founders to properly attract the right VC and bargain for more favorable terms.

But VC is far from perfect and involves some drawbacks – loss of control and the need to experience higher growth rates. VC may not always be the ideal funding method for founders, individuals should weigh and determine if VC funding fits their plans and objectives.

Often, startups fail at fundraising because they do not properly prepare or do not approach the process with the right mindset, framing the partnerships as the valuable means and ends of sustainable and successful development.