Venture capital

If you are thinking of bringing finance into your business by selling some of your equity, consider venture capital. This guide should give you a better understanding of what using venture capital (VC) entails and why it might be a good option for you.

What is venture capital?

  • Venture capital firms invest large amounts of unsecured funds into businesses in return for equity
  • VCs look at:
    • the nature and value of a business
    • future potential
    • the competition in the marketplace
  • They are primarily interested in businesses set on high-growth and expansionist strategies looking to raise between £2m to £5m
  • However, there are also regional VC organisations that may invest in companies looking for finance over £50,000
  • VCs look for a business that has a significant advantage over its competitors and has potential to give them a high return on their investment
  • However, the vast majority of funding proposals put before venture capitalists are turned down

What it offers your business

  • As well as finance, VCs can bring in valuable skills and expertise to your business and make crucial business contacts available to you.
  • They will not look to get involved in the day-to-day running of your business, but will appoint someone to be a member of your board.
  • You will find it easier to access other streams of funding because you have the credibility of having a VC on board
  • As your business grows further, the VC could bring in extra funding
  • They want a high return so will be committed to helping your business grow further

What the downsides could be

  • You have to be prepared to lose some of the control in your business.
  • Venture capitalists will look for:
    • agreements on divided payments
    • changes in business strategy
    • decisions on appointments, dismissals and spending
  • They often look for a mixture of debt and equity so your business may have amounts to pay back over the investment period
  • You also have to pay fees and costs related to due diligence
  • Don't expect the funds to come all at once. You will have to reach pre-agreed targets such as revenue growth to get them
  • It could take three to eight months to get a deal with a VC
  • Be prepared to give up at least 20% of your business

Checklist

  • Determine how much money you need; then work out whether you're willing to lose as much as 20% of the business to secure it
  • Make sure the plans you have for your business are realistic
  • Ensure you business is ready for VC investment
  • If you are going forward for equity investment, it is a good idea to seek advice from a business adviser and a lawyer

FAQ

Where can I find investors?
Networking is a good way to find potential investors: attend events sponsored by your local Business Link and chamber of commerce. Speak to friends and business associates about your venture, too - word of mouth can spark investors' interest and create a buzz around your company. Associations such as the British Private Equity and Venture Capital Association can help connect you with interested parties, as can financial advisers.

Jargon buster

Due diligence: research and evaluation carried out on your company to determine whether it is a good investment proposition. Finances, management team, market and track record are all reviewed.

Resources

Smarta Business Builder

To help you on your business journey, we've created Smarta Business Builder, the complete online tools package for growing your business. Website BuilderBusiness PlansAccounting SoftwareLegal Documents and Email - all in one place - from just £20 per month with no contract! Try it out today.

 

Checklist
Determine how much money you need; then work out whether you're willing to lose as much as 20% of the business to secure it
Make sure the plans you have for your business are realistic
Ensure you business is ready for VC investment
If you are going forward for equity investment, it is a good idea to seek advice from a business adviser and a lawyer
We use cookies to create the most secure and effective website possible for our customers. Full details can be found here