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Venture Capital Business Plan: A Guide for Entrepreneurs

Published Aug.01, 2023

Updated Apr.24, 2024

By: Alex Silensky

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Table of Content

Are you looking for VC funding or funding from other potential investors? You need a good business idea – and an excellent business plan. Business planning and raising capital go hand-in-hand. An investor business plan is required to attract a venture capital firm. And the desire to raise capital (whether from an individual “angel” investor or a venture capitalist) is often the key motivator in business planning.

What is a venture capitalist?

A venture capitalist, often referred to as a VC, strategically allocates financial capital to early-stage, high-potential startup companies to foster exponential growth and catalyze groundbreaking innovation. By leveraging their investments, venture capitalists secure partial ownership and wield a profound influence over critical strategic decisions and operational facets. Furthermore, they impart invaluable guidance and mentorship and harness their extensive network of influential contacts and abundant resources.

Venture capitalists aim to attain considerable returns on their investments through the strategic divestment of their ownership stake in the company at a subsequent stage, commonly facilitated through an IPO or a trade sale, encompassing mergers or acquisitions. Given the inherent risks associated with their investment endeavors, venture capitalists adopt an exceptionally discerning approach, meticulously selecting a mere fraction of the myriad companies that seek their sought-after financial backing.

Their active pursuit centers around identifying enterprises that epitomize disruptive technologies or trailblazing business models, thrive within expansive and rapidly evolving markets, exhibit a significant competitive edge, and are steered by an adept and fervent management team. These are the essential elements of a compelling Business Plan for Investors that can attract the attention and support of venture capitalists.

What is a Venture Capital Firm?

Venture capital firms (VCs) are money companies that put money in and help new and scalable startups. VCs get funds from different investors and then give them to startups they think can change or make new markets. VCs use a team of experts who check the chance of new companies. These experts have different backgrounds and skills in different businesses, and they use their ideas to help VCs pick companies that are likely to do well.

Besides giving money, VCs also give their companies other benefits, such as advice and access to their network of people, which can be very important to early-stage companies.

Types of Venture Capital Investments

Venture capital investments can be classified into different types based on the company’s development stage. The main types are:

1. Seed Capital

Seed capital is the earliest funding given to an innovator or group with a vision for a novel product or service but has yet to transform it into a feasible business. Seed capital is typically used for market exploration, product creation, prototype evaluation, customer verification, etc. Seed capital is very precarious because there is no assurance that the vision will work or that there will be a market appetite for it. However, seed capital can also generate very high rewards if the vision becomes successful and attracts more funding.

2. Startup Capital

Startup capital is the funding given to a company that has created its product or service and has introduced it in the market but has yet to generate substantial revenue or profit. Startup capital is typically used for promotion, sales, distribution, customer acquisition, etc. Startup capital is less precarious than seed capital because there is some indication of product-market fit and traction. However, startup capital can also be challenging to obtain because there is still uncertainty about the scalability and sustainability of the business model.

3. Early Stage Capital

Early-stage capital is the funding granted to a company that has validated its product or service in the market and has begun generating revenue and profit but has yet to attain its full potential. Early-stage capital is typically used to diversify the product or service portfolio, penetrate new segments, recruit more talent, optimize operations, etc. Early-stage capital is less precarious than startup capital because there is more evidence and traction of the business. However, early-stage capital can also be challenging and demanding because there are more expectations and pressure from the investors.

4. Expansion Capital

Expansion capital is the funding given to a company that has attained a significant market presence, revenue, and profit growth and is ready to scale up its business to the next level. Expansion capital is usually used to acquire other entities, develop new products or services, open new outlets, increase production capability, etc. Expansion capital is less perilous than early-stage capital because the business has more stability and predictability. However, expansion capital can also be costly and dilutive because more investors are engaged, and more equity is surrendered.

5. Late Stage Capital

Late-stage capital is the funding bestowed to a company that has reached a mature stage of development and growth and is preparing for an exit event such as an IPO or a trade sale. Late-stage capital is usually used to enhance the company’s valuation, reputation, and visibility, improve financial performance, strengthen governance, etc. Late-stage capital is less perilous than expansion capital because there is more certainty and credibility in the business. However, late-stage capital can also be complex and restrictive because more regulations and obligations are involved. However, a SBA Business Plan can help late-stage companies comply with the requirements and expectations of investors.

6. Bridge Financing

Bridge financing is the interim funding granted to a company that requires short-term capital to fill an urgent need or gap until it obtains a lasting or stable source of financing. Bridge financing is typically utilized for satisfying payroll, settling bills, accomplishing a project, etc. Bridge financing is perilous because there is no assurance that the firm can secure lasting or stable financing. However, bridge financing can also be beneficial and adaptable because it can offer swift and effortless access to cash.

The following table compares the different types of venture capital investments based on their stage, amount, risk, return, and purpose:

Venture Capital and VC Funding Methods

Venture capital is a source of funding for entrepreneurs who need money to grow their businesses. VC funding methods are the terms and conditions venture capitalists agree on when investing in the companies they support. Different methods of making a venture capital deal exist based on the people involved, worth, chance, and choices. The main methods are:

1. Common stock

This is the most straightforward form of VC funding method. It involves issuing shares of common stock to investors in exchange for capital. A common stock gives the investors voting rights and dividends (if any) in proportion to their ownership stake. Common stock is usually preferred by early-stage companies with low valuation and high risk.

2. Preferred stock

This is a more complex and sophisticated form of VC funding method. It involves issuing shares of preferred stock to investors in exchange for capital. Preferred stock gives the investors preference over common stockholders regarding dividends, liquidation, and conversion rights. Preferred stock is usually preferred by later-stage companies that have higher valuations and lower risk.

3. Convertible debt

This is a mixed form of VC funding method. It means giving the investors a debt instrument that can be converted into shares later or when some conditions are satisfied. Convertible debt pays the investors interest and money back until it gets converted. Early companies with unclear worth and a high chance of failure often choose convertible debt.

4. SAFE (Simple Agreement for Future Equity)

This is a newer and simpler form of VC funding method. It means making a deal with the investors that lets them get shares in the future at a fixed worth or lower price. SAFE only involves issuing shares or debt instruments to the investors once a future financing event occurs. SAFE is usually preferred by seed-stage companies that have uncertain valuations and high risk.

Main Sections of a Venture Capital Business Plan

A venture business plan is a document describing your business idea, market opportunity, competitive advantage, financial projections, and funding needs. It is a tool that helps you communicate your vision and strategy to potential investors and partners. A venture business plan sample should include the following sections:

1. Executive Summary

The executive summary is pivotal in your venture business plan, serving as the primary section that demands attention. It aims to present a concise yet comprehensive overview of your business idea, target market, unique value proposition, traction and milestones, financial summary, and funding request. It is vital to draft the executive summary clearly and compellingly that captivates readers and incites their curiosity to explore your venture further.

2. Company Analysis

The company analysis section delves deeper into your company’s narrative, providing a detailed account of its history, mission, vision, values, goals, objectives, team, culture, and legal structure. This section highlights your company’s noteworthy achievements and inherent strengths while addressing the potential challenges and risks it faces. Moreover, it presents a compelling case for the qualifications and capabilities of your team, demonstrating their aptitude in executing the business plan.

3. Industry Analysis

The industry analysis section demonstrates your understanding of the market you operate in or plan to enter. It should provide relevant information about your industry’s size, growth, trends, drivers, challenges, opportunities, and outlook. It should also identify and analyze your industry’s key segments and sub-segments.

4. Customer Analysis

The customer analysis section is important as it outlines and describes your target market and various customer segments. It should encompass a detailed profile of your ideal customers, covering their demographics, psychographics, behaviors, needs, pains, desires, preferences, and purchasing patterns. Furthermore, this section should include an estimation of your product or service’s total addressable market (TAM), serviceable available market (SAM), and serviceable obtainable market (SOM).

5. Competitive Analysis

The competitive analysis section is crucial in identifying and evaluating direct and indirect competitors. It thoroughly assesses their strengths, weaknesses, strategies, products, services, prices, features, benefits, market share, customer satisfaction, and distinctive factors. Additionally, this section explains your market positioning strategy, emphasizing your competitive advantages and unique selling points.

6. Marketing Plan

The marketing plan section outlines your marketing strategy and tactics for reaching and attracting your target customers and generating sales and revenue. It should cover the following elements:

• Product and service
• Distribution
• Marketing process
• Marketing Physical Evidence

7. Operations Plan

The operations plan section describes how you will run and manage your business daily. It should cover the following aspects:

• Human Resources
• Legal issues and requirements

8. Financial Plan

The financial plan section provides a detailed projection of your financial performance and position for three to five years. It should include the following components:

• Income Statement
• Cash Flow Statement
• Balance Sheet
• Break-Even Analysis
• Funding Request
• Funding Sources
• Exit Strategy

OGSCapital for Your Venture Capital Business Plan

Are you looking for an answer to: How to write a venture capital business plan? Our business plan experts at OGSCapital can help. We have a team of professional business plan writers with over 15 years of experience offering business plan writing services. We have helped over 5,000 clients attract more than $2.7 billion in financing. Here are some of the reasons why you should choose OGSCapital for your venture capital business plan:

OGSCapital can provide you with the following benefits:

• A customized and high-quality business plan
• Comprehensive and in-depth market research and analysis
• A realistic and accurate financial model and projections
• A persuasive and compelling executive summary
• A professional and attractive design and layout of your business plan
• Fast and reliable delivery within 10 to 15 days
• A revision after receiving the first draft of your business plan

If you’re also confused about how to write a business plan for venture capital that stands out from the crowd and increases your chances of getting funded, contact our experts at OGSCapital today.

Frequently Asked Questions

1. What do venture capitalists look for in a business plan?

A business plan to raise venture capital should demonstrate a great business idea, a talented and experienced team, a unique and valuable product or service, a market validation, a huge and expanding market, and a good deal and exit strategy. Plus, it should be clear, concise, well-researched and realistic.

2. What is the golden rule for venture capitalists?

For venture capitalists, people matter more than ideas. They look for entrepreneurs and managers with passion, dedication, flexibility, and willingness to learn from feedback. Venture capitalists believe these are the essential qualities that make or break a venture.

Download Venture Capital Business Plan Sample in PDF

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

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Venture Capital Business Plan [Sample Template]

By: Author Tony Martins Ajaero

Home » Business Plans » Financial Services

Are you about starting a venture capital firm ? If YES, here’s a complete sample venture capital business plan template & feasibility report you can use for FREE to raise money .

If you are interested in the capital market and you have some form of financial expertise and certifications, one of the businesses that you can conveniently start is a venture capital firm. As a venture capital firm, your responsibility is to pool capital from investors and then invest it in startups businesses.

Aside from the money invested, venture capitalists also ensure that they provide the capacity and support which startups companies need to grow and become profitable. The first step you need to take if you want to start your own venture capital firm is to conduct an extensive research on venture capital firm.

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A Sample Venture Capital Firm Business Plan Template

1. industry overview.

The Venture Capital and Principal Trading industry is an industry that comprises of firms and investment consultants basically acting as principals in the buying or selling of financial contracts. Essentially, principals in this context are investors who trade (buy or sell) for their own account, rather than on behalf of their clients.

This industry consist of venture capital firms, investment clubs and venture  settlement companies and does not include investment bankers, securities dealers and commodity contracts dealers trading as principals.

It is a fact that, the Venture Capital and Principal Trading industry is growing faster than most industries in the financial services sector not only in the united states but across the global market. Industry value added (IVA), a measure of the industry’s contribution to the overall economy, is projected to increase at a 6.9 percent annualized rate over the next 10 years.

Indeed, the Venture Capital and Principal Trading industry is a very large and thriving industry not only in the developed nations, but also in developing and under developing countries of the world. Statistics has it that the Venture Capital and Principal Trading industry in the United States of America, is worth $106 billion, with an estimated growth rate of 4.2 percent.

There are about 29,069 registered and licensed venture capital firms in the United States and they are responsible for employing about 74,814 people. It is important to state that there is no company with a dominant market share in this industry; the industry is open for fair competitions for the available market.

Over and above, the main reasons for starting a venture capital firm is obviously to provide funding for startup companies with great potential of making profits and growing big in the future.

So your responsibility is not just to raise capital but also to look for startup companies where the capital can be invested and it will generate good returns for over a period of time. The truth is that it takes a core professional to be able to identify a startup company that has the potential to grow and become profitable if funds and pumped into it.

2. Executive Summary

St. Martins& Associates, LLP is a registered, licensed and accredited venture capitalist firm that will be based in New York City – New York.

The company will handle all aspect of venture capitalists services such as investing in financial contracts on own account, participating in investment clubs (group of people who pool their money to make investments), mineral royalties or leases dealing (as principal in dealing to investors), oil royalty dealing (as principal in dealing to investors), vertical settlement (purchasing life insurance policy at a discount to later collect the death benefit), venture capital (investing in startups and small businesses with long-term growth potential), trade in financial products and other relevant investment advisory and consulting services.

We are aware that to run a standard venture capital firm can be demanding which is why we are well trained, certified and equipped to perform excellently well. St. Martins & Associates, LLP is a client – focused and result driven venture capitalist firm that provides broad- based services.

We will offer trusted and profitable venture capitalists services to all our individual clients, and corporate clients at local, state, national, and international level. We will ensure that we work hard to meet and surpass our clients’ expectations whenever they invest their funds with us.

At St. Martins & Associates, LLP, our client’s best interest would always come first, and everything we do is guided by our values and professional ethics. We will ensure that we hire professionals who are well experienced in venture capitalist line of business and other investment portfolios with good track record of return on investments.

St. Martins & Associates, LLP will at all times demonstrate her commitment to sustainability, both individually and as a firm, by actively participating in our communities and integrating sustainable business practices wherever possible.

We will ensure that we hold ourselves accountable to the highest standards by meeting our client’s needs precisely and completely. We will cultivate a working environment that provides a human, sustainable approach to earning a living, and living in our world, for our partners, employees and for our clients.

Our plan is to position the business to become one of the leading brands in the venture capitalists line of business in the whole of New York City, and also to be amongst the top 20 venture capitalists firms in the United States of America within the first 10 years of operations.

This might look too tall a dream but we are optimistic that this will surely be realized because we have done our research and feasibility studies and we are enthusiastic and confident that New York is the right place to launch our venture capitalists business before expanding our investment portfolio sourcing for start – ups from other cities in The United States of America.

St. Martins & Associates, LLP is founded by Martin Yorkshire and his business partners for many years Carlos Dominguez. The organization will be managed by both of them since they have adequate working experience to manage such business.

Martin Yorkshire has well over 15 years of experience working at various capacity as a venture capitalist for leading investment banks and related firms in the United States of America. Martin Yorkshire graduated from both University of California – Berkley with a Degree in Accounting, and University of Harvard (MSc.) and he is an accredited and certified venture capitalist.

3. Our Products and Services

St. Martins & Associates, LLP is going to offer varieties of services within the scope of the financial investment services industry in the United States of America. Our intention of starting our St. Martins & Associates, LLP firm is to work with promising start – ups and other business ventures.

We are well prepared to make profits from the Venture Capital and Principal Trading industry and we will do all that is permitted by the law in the United States to achieve our business goals, aim and ambition. Our business offering are listed below;

• Investing in financial contracts on own account
• Participating in investment clubs (group of people who pool their money to make investments)
• Mineral royalties or leases dealing (as principal in dealing to investors)
• Oil royalty dealing (as principal in dealing to investors)
• Vertical settlement (purchasing life insurance policy at a discount to later collect the death benefit)
• Venture capital (investing in startups and small businesses with long-term growth potential)
• Trade in financial products
• Related investment consulting and advisory services

4. Our Mission and Vision Statement

• Our vision is to build a venture capitalists brand that will become one of the top choices for investors in the whole of New York City – New York.
• Our vision reflects our values: integrity, service, excellence and teamwork.
• Our mission is to position the business to become one of the leading brands in the Venture Capital and Principal Trading industry in the whole of New York City, and also to be amongst the top 20 venture capitalist firms in the United States of America within the first 10 years of operations.

Our Business Structure

Ordinarily we would have settled for two or three staff members, but as part of our plan to build a standard venture capitalist firm in New York City – New York, we have perfected plans to get it right from the beginning which is why we are going the extra mile to ensure that we have qualified, competent, honest and hardworking employees to occupy all the available positions in our firm.

The picture of the kind of the venture capitalist firm we intend building and the business goals we want to achieve is what informed the amount we are ready to pay for the best hands available in and around New York and environs as long as they are willing and ready to work with us to achieve our business goals and objectives. Below is the business structure that we will build St. Martins & Associates, LLP;

• Chief Executive Officer
• Venture Capitalists Consultants

Admin and HR Manager

Risk Manager

• Marketing and Sales Executive

Chief Financial Officer (CFO) / Chief Accounting Officer (CAO).

• Customer Care Executive / Front Desk Officer

5. Job Roles and Responsibilities

Chief Executive Office:

• Increases management’s effectiveness by recruiting, selecting, orienting, training, coaching, counseling, and disciplining managers; communicating values, strategies, and objectives; assigning accountabilities; planning, monitoring, and appraising job results; developing incentives; developing a climate for offering information and opinions; providing educational opportunities.
• Creating, communicating, and implementing the organization’s vision, mission, and overall direction – i.e. leading the development and implementation of the overall organization’s strategy.
• Responsible for fixing prices and signing business deals
• Responsible for providing direction for the business
• Creates, communicates, and implements the organization’s vision, mission, and overall direction – i.e. leading the development and implementation of the overall organization’s strategy.
• Responsible for signing checks and documents on behalf of the company
• Evaluates the success of the organization

Venture Capitalist Consultants

• Provides market research and implementing new investment product and strategies
• Creates research and review platforms for new, existing and potential investment products
• Exceeds client expectations with returns on investments
• Works closely with analysts and traders to ensure trading strategy is carried out correctly
• Construct and review performance reports to show to investors
• Works directly with marketer to relay investment strategy and risk measures for website and other forms of marketing for your hedge fund
• Performs due diligence visits and assessing investment management firms and quantitatively analyzing investment pools
• Has extensive knowledge of industry policies and regulations set in place by the SEC
• Focuses on capital introductions and networking to sign up new investors to your fund
• Plans, designs and implements an overall risk management process for the organization;
• Risk assessment, which involves analyzing risks as well as identifying, describing and estimating the risks affecting the business;
• Risk evaluation, which involves comparing estimated risks with criteria established by the organization such as costs, legal requirements and environmental factors, and evaluating the organization’s previous handling of risks;
• Establishes and quantifies the organization’s ‘risk appetite’, i.e. the level of risk they are prepared to accept;
• Risk reporting in an appropriate way for different audiences, for example, to the board of directors so they understand the most significant risks, to business heads to ensure they are aware of risks relevant to their parts of the business and to individuals to understand their accountability for individual risks;
• Corporate governance involving external risk reporting to stakeholders;
• Carries out processes such as purchasing insurance, implementing health and safety measures and making business continuity plans to limit risks and prepare for if things go wrong;
• Conducts audits of policy and compliance to standards, including liaison with internal and external auditors;
• Provides support, education and training to staff to build risk awareness within the organization.
• Responsible for overseeing the smooth running of HR and administrative tasks for the organization
• Design job descriptions with KPI to drive performance management for clients
• Regularly hold meetings with key stakeholders to review the effectiveness of HR Policies, Procedures and Processes
• Maintains office supplies by checking stocks; placing and expediting orders; evaluating new products.
• Ensures operation of equipment by completing preventive maintenance requirements; calling for repairs.
• Defines job positions for recruitment and managing interviewing process
• Carries out staff induction for new team members
• Responsible for training, evaluation and assessment of employees
• Responsible for arranging travel, meetings and appointments
• Updates job knowledge by participating in educational opportunities; reading professional publications; maintaining personal networks; participating in professional organizations.
• Oversees the smooth running of the daily office activities.

Marketing / Investor Relations Officer

• Identifies, prioritizes, and reach out to new partners, and business opportunities et al
• Identifies development opportunities; follows up on development leads and contacts; participates in the structuring and financing of projects; assures the completion of relevant projects.
• Writes winning proposal documents, negotiate fees and rates in line with company policy
• Responsible for handling business research, marker surveys and feasibility studies for clients
• Responsible for supervising implementation, advocate for the customer’s needs, and communicate with clients
• Develops, executes and evaluates new plans for expanding increase sales
• Documents all customer contact and information
• Represents the company in strategic meetings
• Helps increase sales and growth for the company
• Responsible for preparing financial reports, budgets, and financial statements for the organization
• create reports from the information concerning the financial transactions recorded by the bookkeeper
• Prepares the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.
• Provides managements with financial analyses, development budgets, and accounting reports; analyzes financial feasibility for the most complex proposed projects; conducts market research to forecast trends and business conditions.
• Responsible for financial forecasting and risks analysis.
• Performs cash management, general ledger accounting, and financial reporting for one or more properties.
• Responsible for developing and managing financial systems and policies
• Responsible for administering payrolls
• Ensures compliance with taxation legislation
• Handles all financial transactions for the company
• Serves as internal auditor for the company

Client Service Executive / Front Desk Officer

• Welcomes guests and clients by greeting them in person or on the telephone; answering or directing inquiries.
• Ensures that all contacts with clients (e-mail, walk-In center, SMS or phone) provides the client with a personalized customer service experience of the highest level
• Through interaction with clients on the phone, uses every opportunity to build client’s interest in the company’s products and services
• Manages administrative duties assigned by the manager in an effective and timely manner
• Consistently stays abreast of any new information on the company’s products, promotional campaigns etc. to ensure accurate and helpful information is supplied to clients
• Receives parcels / documents for the company
• Distributes mails in the organization
• Handles any other duties as assigned my the line manager

6. SWOT Analysis

St. Martins & Associates, LLP engaged the services of a core professional in the area of business structuring to assist our organization in building a well – structured venture capitalist firm that can favorably compete in the highly competitive Venture Capital and Principal Trading industry.

Part of what the team of business consultant did was to work with the management of our organization in conducting a SWOT analysis for St. Martins & Associates, LLP. Here is a summary from the result of the SWOT analysis that was conducted on behalf of St. Martins & Associates, LLP;

Our core strength lies in the power of our team; our workforce. We have a team that can go all the way to give our clients value for their money ( good returns on their investment ) and also to increase our annual returns; a team that are trained and equipped to pay attention to details and to deliver excellent jobs. We are well positioned and we know we will attract loads of clients from the first day we open our doors for business.

As a new venture capitalist firm, it might take some time for our organization to break into the market and gain acceptance especially from corporate clients in the already saturated Venture Capital and Principal Trading industry that is perhaps our major weakness. So also we may not have the required cash to give our business the kind of publicity we would have loved to.

• Opportunities:

The opportunities in the Venture Capital and Principal Trading industry is massive considering the number of small businesses who would need financial supports and strategies from venture capitalists to grow their business and increase their profits.

As a standard and accredited venture capitalist firm, we are ready to take advantage of any opportunity that comes our way.

Venture capitalist firms services involves large amount of cash and it is known to be a very high risk venture,      Hence, whoever chooses to manage it must not just have solid investment background, but must also know how to handle risks and discover potential thriving businesses and opportunities.

The truth is that if you are not grounded in risks management as a venture capitalist, you may likely throw away peoples’ monies and investment. Just as in any other business and investment vehicles, economic downturn, unstable financial market and unfavorable government economic policies can hamper the growth and profitability of venture capitalist firms.

7. MARKET ANALYSIS

• Market Trends

A close watch on the Venture Capital and Principal Trading industry shows that in the dawn of recessionary declines, the industry is expected to continue on a path to growth, but not without a few more ups and downs. This group of firms and individuals has benefited from rising security prices and increasing merger and acquisition activity over the last five years.

As a result of this trend, Venture Capital and Principal Trading industry revenue is expected to grow over the five-year period at an annualized rate of 9.1 percent to $42.9 billion in 2016.

The revenue growth for the industry was restrained in the early part of the period as the industry was reluctant to bounce back from the financial crisis and subsequent recession of the prior period that caused stock markets and business activity to dramatically contract in the United States and of course in the global market.

On the average, it is trendy to find venture capital firms employ strategies that can help them reduce market risk specifically by shorting equities or through the use of derivatives.

8. Our Target Market

The main reasons for starting a venture capital firm is obviously to provide funding for startup companies with great potential of making profits and growing big in the future. So your responsibility is not just to raise capital but also to look for startup companies where the capital can be invested and it will generate good returns for over a period of time.

The truth is that it takes a core professional to be able to identify a startup company that has the potential to grow and become profitable if funds and pumped into it.

As a standard, accredited and licensed venture capitalist firm, St. Martins & Associates, LLP offers a wide range of investment portfolio management services hence we are well trained and equipped to services a wide range of clientele base and start – ups.

Our target market cuts across businesses and investors that have the required capital to invest in start – ups and other investment portfolios. We are coming into the industry with a business concept and investment strategies that will enable us produce good returns on investment for ourselves and our clients.

Below is a list of the individual and organizations that we have specifically design our products and services for;

• Small and medium scales businesses
• Accredited Investors
• Start – ups
• Investment Clubs
• Top corporate executives
• Corporate Organizations / Blue Chip Companies

Our Competitive Advantage

Despite the fact that venture capitalist investment strategies give huge returns on investment, it is indeed risky venture. If you drive through the street of New York City, you will come across several venture capitalists firms and related business ventures; that goes to show you that there is competition in the industry.

For you to survive as a venture capitalist firm, you should be able to come up with workable investment strategies; strategies that will help you attract the required cash / capital and above all you should be a good risks manager and one that can spot a potential thriving business from afar.

We are quite aware that to be highly competitive in the Venture Capital and Principal Trading industry means that we should be able to give good returns on investments to our clients, turn around the fortune of a dying company for good , spot potential successful business ideas and invest in them, deliver consistent quality service, our clients should be satisfied with our investment strategies and we should be able to meet the expectations of clients.

St. Martins& Associates, LLP might be a new entrant into the Venture Capital and Principal Trading industry in the United States of America, but the management staffs and owners of the business are considered gurus. They are people who are core professionals and licensed and highly qualified portfolio management experts in the United States. These are part of what will count as a competitive advantage for us.

Lastly, our employees will be well taken care of, and their welfare package will be among the best within our category (start – ups venture capitalist businesses) in the industry meaning that they will be more than willing to build the business with us and help deliver our set goals and achieve all our aims and objectives.

9. SALES AND MARKETING STRATEGY

• Sources of Income

St. Martins& Associates, LLP is established with the aim of maximizing profits in the Venture Capital and Principal Trading industry and we are going to go all the way to ensure that we do all it takes to attract clients on a regular basis. St. Martins& Associates, LLP will generate income by offering the following investment related services;

10. Sales Forecast

One thing is certain, there would always be accredited investors, small scale and medium scale businesses and wealthy individuals who would need the services of tested and trusted venture capitalist firms.

We are well positioned to take on the available market in New York City and other key cities in the United States of America and we are quite optimistic that we will meet our set target of generating enough income / profits from the first six month of operations and grow the business and our clientele base beyond New York City to other cities in the United States of America.

We have been able to critically examine the Venture Capital and Principal Trading industry and we have analyzed our chances in the industry and we have been able to come up with the following sales forecast. The sales projection is based on information gathered on the field and some assumptions that are peculiar to similar startups in New York City.

Below is the sales projection for St. Martins& Associates, LLP, it is based on the location of our business and the wide range of investment management services that we will be offering;

• First Fiscal Year-: $750,000
• Second Year-: $1.5 Million
• Third Year-: $3 Million

N.B : This projection is done based on what is obtainable in the industry and with the assumption that there won’t be any major economic meltdown and there won’t be any major competitor offering same additional services as we do within same location. Please note that the above projection might be lower and at the same time it might be higher.

• Marketing Strategy and Sales Strategy

We are mindful of the fact that there are stiffer competition amongst venture capitalists firms and other related financial investment cum consulting service providers in the United States of America; hence we have been able to hire some of the best business developer to handle our sales and marketing.

Our sales and marketing team will be recruited based on their vast experience in the industry and they will be trained on a regular basis, so as to be well equipped to meet their targets and the overall goal of the organization.

We will also ensure that our return on investment and excellent job deliveries speaks for us in the market place; we want to build a standard venture capitalist business that will leverage on word of mouth advertisement from satisfied clients (both individuals and corporate organizations).

Our goal is to grow our venture capitalists firm to become one of the top 20 venture capitalist firms in the United States of America which is why we have mapped out strategy that will help us take advantage of the available market and grow to become a major force to reckon with not only in the New York City but also in other cities in the United States of America.

St. Martins& Associates, LLP is set to make use of the following marketing and sales strategies to attract clients;

• Introduce our business by sending introductory letters alongside our brochure to corporate organizations, start – ups, accredited investors, entrepreneurs and key stake holders in New York City and other cities in The United States
• Advertise our business in relevant financial and business related magazines, newspapers, TV stations, and radio station.
• List our business on yellow pages ads (local directories)
• Attend relevant international and local finance and business expos, seminars, and business fairs et al
• Create different packages for different category of clients (start – ups and established corporate organizations) in order to work with their budgets and still deliver good returns on investment
• Leverage on the internet to promote our business
• Engage direct marketing approach
• Encourage word of mouth marketing from loyal and satisfied clients

11. Publicity and Advertising Strategy

The uniqueness of the Venture Capital and Principal Trading industry is such that it is the result they produce that helps boost their brand awareness.

Venture capitalists firms do not go out there to source any businesses or investors that they can come across but they are strategic when it comes to inviting investors to invest in a project or when it comes to acquiring a struggling company.

It will be out of place to boost your venture capitalist firm brand if you have not proven your worth in the industry. If you have successfully proven that you have what it takes to operate a successful venture capitalist firm, then you next port of call is to strategically engage the media to help you promote your brand and also to create a positive corporate identity.

We have been able to work with our brand and publicity consultants to help us map out publicity and advertising strategies that will help us walk our way into the heart of our target market.

We are set to take the Venture Capital and Principal Trading industry by storm which is why we have made provisions for effective publicity and advertisement of our venture capitalist firm. Below are the platforms we intend to leverage on to promote and advertise St. Martins & Associates, LLP;

• Place adverts on both print ( community based newspapers and magazines ) and electronic media platforms
• Sponsor relevant community based events / programs
• Leverage on the internet and social media platforms like; Instagram, Facebook , twitter, YouTube, Google + et al to promote our brand
• Install our Bill Boards on strategic locations all around New York City.
• Engage in road show from time to time
• Distribute our fliers and handbills in target areas
• Ensure that all our workers wear our branded shirts and all our vehicles are well branded with our company’s logo et al.

12. Our Pricing Strategy

Venture capitalists are known to generate income from various investment portfolios hence there are no pricing models for this type of business.

But on the other hand, they tend to negotiate with their financial partners on percentage whenever they invest their hard earned money in an investment vehicle handled by a venture capitalist firm. At St. Martins& Associates, LLP we will ensure that we give good returns on investment (ROI) and always maximize profits.

• Payment Options

At St. Martins & Associates, LLP our payment policy will be all inclusive because we are quite aware that different people prefer different payment options as it suits them. Here are the payment options that we will make available to our clients;

• Payment by via bank transfer
• Payment via online bank transfer
• Payment via check
• Payment via bank draft
• Payment with cash

In view of the above, we have chosen banking platforms that will help us achieve our plans with little or no itches.

13. Startup Expenditure (Budget)

The cost of starting a venture capitalists firm is in the two fold; the cost of setting up the office structure and of course the capital meant for investment. The amount required to invest in this line of business could range from 1 Million US Dollars to even multiple Millions of Dollars. So you must employ aggressive strategies to pool such cash together.

As regard the cost of setting up the office structure, your concern should be to secure a good office facility in a busy business district; it can be expensive though, but that is one of the factors that will help you position your hedge fund firm to attract the kind of investors you would need. This is the financial projection and costing for starting St. Martins & Associates, LLP;

• The Total Fee for incorporating the Business – $750.
• The budget for basic insurance policy covers, permits and business license – $2,500
• The Amount needed to acquire a suitable Office facility in a business district 6 months (Re – Construction of the facility inclusive) – $40,000.
• The Cost for equipping the office (computers, software applications, printers, fax machines, furniture, telephones, filing cabins, safety gadgets and electronics et al) – $5,000
• The cost for purchase of the required software applications (CRM software, Accounting and Bookkeeping software and Payroll software et al) – $10,500
• The Cost of Launching your official Website – $600
• Budget for paying  at least three employees for 3 months plus utility bills – $10,000
• Additional Expenditure (Business cards, Signage, Adverts and Promotions et al) – $2,500
• Investment fund – 1 Million Dollars
• Miscellaneous: $1,000

Going by the report from the market research and feasibility studies conducted, we will need $150,000 excluding $1M investment capital to successfully set – up a medium scale but standard venture capitalist firm in the United States of America.

Generating Funding / Startup Capital for St. Martins & Associates, LLP

St. Martins & Associates, LLP is a business that will be owned and managed by Martin Yorkshire and his business partners for many years Carlos Dominguez. They are the sole financial of the firm, but may likely welcome other partners later which is why they decided to restrict the sourcing of the start – up capital for the business to just three major sources.

These are the areas we intend generating our start – up capital;

• Generate part of the start – up capital from personal savings
• Source for soft loans from family members and friends
• Apply for loan from my Bank

N.B: We have been able to generate about $50,000 ( Personal savings $40,000 and soft loan from family members $10,000 ) and we are at the final stages of obtaining a loan facility of $100,000 from our bank. All the papers and document has been duly signed and submitted, the loan has been approved and any moment from now our account will be credited.

14. Sustainability and Expansion Strategy

The future of a business lies in the numbers of loyal customers that they have the capacity and competence of the employees, their investment strategy and the business structure. If all of these factors are missing from a business (company), then it won’t be too long before the business close shop.

One of our major goals of starting St. Martins & Associates, LLP is to build a business that will survive off its own cash flow without the need for injecting finance from external sources once the business is officially running. We know that one of the ways of gaining approval and winning customers over is to give investors good returns on their investment.

We will make sure that the right foundation, structures and processes are put in place to ensure that our staff welfare is well taken of. Our company’s corporate culture is designed to drive our business to greater heights and training and re – training of our workforce is at the top burner of our business strategy.

As a matter of fact, profit-sharing arrangement will be made available to all our management staff and it will be based on their performance for a period of three years or more as determined by the board of the organization. We know that if that is put in place, we will be able to successfully hire and retain the best hands we can get in the industry; they will be more committed to help us build the business of our dreams.

Check List / Milestone

• Business Name Availability Check:>Completed
• Business Incorporation: Completed
• Opening of Corporate Bank Accounts various banks in the United States: Completed
• Opening Online Payment Platforms: Completed
• Application and Obtaining Tax Payer’s ID: In Progress
• Application for business license and permit: Completed
• Purchase of All form of Insurance for the Business: Completed
• Securing a standard office facility in New York City: Completed
• Conducting Feasibility Studies: Completed
• Generating part of the start – up capital from the founder: Completed
• Applications for Loan from our Bankers: In Progress
• Writing of Business Plan: Completed
• Drafting of Employee’s Handbook: Completed
• Drafting of Contract Documents: In Progress
• Design of The Company’s Logo: Completed
• Graphic Designs and Printing of Packaging Marketing / Promotional Materials: Completed
• Recruitment of employees: In Progress
• Purchase of the Needed software applications, furniture, office equipment, electronic appliances and facility facelift: In progress
• Creating Official Website for the Company: In Progress
• Creating Awareness for the business (Business PR): In Progress
• Health and Safety and Fire Safety Arrangement: In Progress
• Establishing business relationship with vendors and key players in the industry: In Progress

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• Write Your Business Plan | Part 1 Overview Video
• The Basics of Writing a Business Plan
• How to Use Your Business Plan Most Effectively
• 12 Reasons You Need a Business Plan
• The Main Objectives of a Business Plan
• What to Include and Not Include in a Successful Business Plan
• The Top 4 Types of Business Plans
• A Step-by-Step Guide to Presenting Your Business Plan in 10 Slides
• 6 Tips for Making a Winning Business Presentation
• 3 Key Things You Need to Know About Financing Your Business
• 12 Ways to Set Realistic Business Goals and Objectives
• How to Perfectly Pitch Your Business Plan in 10 Minutes
• Write Your Business Plan | Part 2 Overview Video
• How to Fund Your Business Through Friends and Family Loans and Crowdsourcing
• How to Fund Your Business Using Banks and Credit Unions
• How to Fund Your Business With an SBA Loan
• How to Fund Your Business With Bonds and Indirect Funding Sources
• How to Fund Your Business With Venture Capital
• How to Fund Your Business With Angel Investors
• How to Use Your Business Plan to Track Performance
• How to Make Your Business Plan Attractive to Prospective Partners
• Is This Idea Going to Work? How to Assess the Potential of Your Business.
• When to Update Your Business Plan
• Write Your Business Plan | Part 3 Overview Video
• How to Write the Management Team Section to Your Business Plan
• How to Create a Strategic Hiring Plan
• How to Write a Business Plan Executive Summary That Sells Your Idea
• How to Build a Team of Outside Experts for Your Business
• Use This Worksheet to Write a Product Description That Sells
• What Is Your Unique Selling Proposition? Use This Worksheet to Find Your Greatest Strength.
• How to Raise Money With Your Business Plan
• Customers and Investors Don't Want Products. They Want Solutions.
• Write Your Business Plan | Part 4 Overview Video
• 5 Essential Elements of Your Industry Trends Plan
• How to Identify and Research Your Competition
• Who Is Your Ideal Customer? 4 Questions to Ask Yourself.
• How to Identify Market Trends in Your Business Plan
• How to Define Your Product and Set Your Prices
• How to Determine the Barriers to Entry for Your Business
• How to Get Customers in Your Store and Drive Traffic to Your Website
• How to Effectively Promote Your Business to Customers and Investors
• Write Your Business Plan | Part 5 Overview Video
• What Equipment and Facilities to Include in Your Business Plan
• How to Write an Income Statement for Your Business Plan
• How to Make a Balance Sheet
• How to Make a Cash Flow Statement
• How to Use Financial Ratios to Understand the Health of Your Business
• How to Write an Operations Plan for Retail and Sales Businesses
• How to Make Realistic Financial Forecasts
• How to Write an Operations Plan for Manufacturers
• What Technology Needs to Include In Your Business Plan
• How to List Personnel and Materials in Your Business Plan
• The Role of Franchising
• The Best Ways to Follow Up on a Buisiness Plan
• The Best Books, Sites, Trade Associations and Resources to Get Your Business Funded and Running
• How to Hire the Right Business Plan Consultant
• Business Plan Lingo and Resources All Entrepreneurs Should Know
• How to Write a Letter of Introduction
• What To Put on the Cover Page of a Business Plan
• How to Format Your Business Plan
• 6 Steps to Getting Your Business Plan In Front of Investors

How to Fund Your Business With Venture Capital Venture capitalists lend money and make equity investments in young companies.

By Eric Butow Oct 27, 2023

Key Takeaways

• Venture capitalists are known for taking risks on new companies and innovative entrepreneurs in the hopes of gaining big returns.
• Business owners typically exchange a percentage of their company's ownership for VC backing.
• Venture capitalists are not as likely to provide seed money as angels.
• Startup capital is financing used to get a business with a proven idea up and running.
• Many will insist on placing one or more directors on the boards of companies they finance.

Opinions expressed by Entrepreneur contributors are their own.

This is part 6 / 11 of Write Your Business Plan: Section 2: Putting Your Business Plan to Work series.

Venture capitalists represent the most glamorous and appealing form of financing to many entrepreneurs. They are known for backing high-risk companies in the early stages, and a lot of the best-known entrepreneurial success stories owe their early financing to venture capitalists.

When many entrepreneurs write a business plan, obtaining venture capital backing is what they have in mind. That's understandable. Venture capitalists are associated with business success. They can provide large sums of money, valuable advice, priceless contacts, and considerable prestige by their mere presence. Just the fact that you've obtained venture capital backing means your business has, in their eyes at least, considerable potential for rapid and profitable growth.

Related: Everything You Need To Know About Attracting Venture Capitalists

Venture capitalists both lend to and make equity investments in young companies. The loans are often expensive, carrying rates of up to 20 percent. They sometimes also provide what may seem like very cheap capital. That means you don't have to pay out hard-to-get cash in the form of interest and principal installments. Instead, you give a portion of your or other owners' interest in the company in exchange for the VC's backing.

When Venture Capital Is an Option

Venture capital is most often used to finance companies that are young without being babies and that are established without being mature. But it can also help struggling firms as well as those that are on the edge of breaking into the big time.

The following are the major types and sources of capital, along with distinguishing characteristics of each:

Seed money. Seed money is the initial capital required to transform a business from an idea into an enterprise. Venture capitalists are not as likely to provide seed money as some other, less tough-minded financing sources, such as family investors. However, venture capitalists will back seedlings if the idea is strong enough and the prospects promising enough. If they see something new and exciting (usually an aspect of technology) and foresee rapid growth (and a strong potential for high earnings), they may jump in and back a fledgling startup. It's a long shot, but it does happen.

VCs, however, are less likely to provide equity capital to a seed-money-stage entrepreneur than they are to provide debt financing. This may come in the form of a straight loan, usually some kind of subordinated debt. It may also involve a purchase of bonds issued by the company. Frequently these will be convertible bonds that can be exchanged for shares of stock. Venture capitalists may also purchase shares of preferred stock in a startup. Holders of preferred shares receive dividends before common stockholders and also get paid before other shareholders if the company is dissolved.

Related: The Truth About Venture Capitalist Funding

Seed money is usually a relatively small amount of cash, up to $250,000 or so, that is used to prove a business concept has merit. It may be earmarked for producing working prototypes, doing market research, or otherwise testing the waters before committing to a full-scale endeavor.

Startup capital. Startup capital is financing used to get a business with a proven idea up and running. For example, a manufacturer might use startup capital to get production underway, set up marketing, and create some actual sales. This amount may reach $1 million.

Venture capitalists are frequently enthusiastic financiers of startups because they carry less risk than companies at the seed money stage but still offer the prospect of the high return on investment that VCs require.

Later-round financing. Venture capitalists may also come in on some later rounds of financing. First-stage financing is usually used to set up full-scale production and market development. Second-stage financing is used to expand the operations of an already up-and-running enterprise, often through financing receivables, adding production capacity, or boosting marketing. Mezzanine financing, an even later stage, may be required for a major expansion of profitable and robust enterprises. Bridge financing is often the last stage before a company goes public. It may be used to sustain a growing company during the often lengthy process of preparing and completing a public offering of stock.

Related: The Best Source Of Funding You'll Ever Find

Venture capitalists even invest in companies that are in trouble. These turnaround investments can be riskier than startups and, therefore, even more expensive to the entrepreneurs involved.

Venture capital isn't for everybody, but it provides a very important financing option for some young firms. When writing a business plan to raise money, you may want to consider venture capitalists and their unique needs.

What Venture Capitalists Want

While venture capitalists come in many forms, they have similar goals. They want their money back, and they want it back with a lot of interest and capital growth.

VCs typically invest in companies that they foresee being sold either to the public or to larger firms within the next several years. As part owners of the firm, they'll get their rewards when such sales go through. Of course, if there's no sale or if the company goes bankrupt, they don't even get their initial money back.

Related: What Is Entrepreneur Capital VS Venture Capital

VCs aren't quite the plungers they may seem. They're willing to assume risk, but they want to minimize it as much as possible. Therefore, they typically look for certain features in companies they are going to invest in. Those include:

• Rapid sales growth
• A proprietary new technology or dominant position in an emerging market
• A sound management team
• The potential to be acquired by a larger company or be taken public in a stock offering within three to five years
• High rates of return on their investment

Rates of Return

Like most financiers, venture capitalists want the return of any funds they lend or use to purchase equity interest in companies. But VCs have some very special requirements regarding the terms they want and, especially, the rates of return they demand.

Related: Why You Need To Think Twice About Venture Capital

Venture capitalists require that their investments have the likelihood of generating very high rates of return. A 30 percent to 50 percent annual rate of return is a benchmark many venture capitalists seek. That means if a venture capitalist invested $1 million in your firm and expected to sell out in three years with a 35 percent annual gain, he or she would have to be able to sell the stake for approximately $2.5 million.

These are high rates of return compared with the 2.5 percent or so usually offered by ten-year U.S. Treasury notes and the nearly 10 percent historical return of the U.S. stock market. Venture capitalists justify their desires for such high rates of return by the fact that their investments are high-risk.

Related: The Rise Of Alternative Venture Capital

Most venture-backed companies, in fact, are not successful and generate losses for their investors. Venture capitalists hedge their bets by taking a portfolio approach: If one in ten of their investments takes off and six do OK, then the three that stumble or fail will be a minor nuisance rather than an economic cold bath.

Cashing-Out Options

One key concern of venture capitalists is a way to cash out their investment. This is typically done through a sale of all or part of the company, either to a larger firm through an acquisition or to the public through an initial stock offering.

In effect, this need for cashing-out options means that if your company isn't seen as a likely candidate for a buyout or an initial public offering (IPO) in the next five years or so, VCs aren't going to be interested.

Related: Why Raising Capital Is A 4-Step Process

Being Acquired

A common way for venture capitalists to cash out is for the company to be acquired, usually by a larger firm. An acquisition can occur through a merger or using a payment of cash, stock, debt, or some combination.

Mergers and acquisitions don't have to meet the strict regulatory requirements of public stock offerings, so they can be completed much more quickly, easily, and cheaply than an IPO. Buyers will want to see audited financials, but you—or the financiers who may wind up controlling your company—can literally strike a deal to sell the company over lunch or a game of golf. About the only roadblocks that could be thrown up would be if you couldn't finalize the terms of the deal, if it turned out that your company wasn't what it seemed, or, rarely if the buyout resulted in a monopoly that generated resistance from regulators.

Related: 8 Key Factors VCs Consider When Evaluating Start-Ups

Venture capitalists assessing your firm's acquisition chances will look for characteristics like proprietary technology, distribution systems, or product lines that other companies might want to possess. They also like to see larger, preferably acquisition-minded, firms in your industry. For instance, Microsoft, the world's largest software firm, frequently acquires small personal computer software firms with talented personnel or unique technology. Venture capitalists looking at funding a software company are almost certain to include an assessment of whether Microsoft might be interested in buying out the company someday.

Going Public: Initial Public Offerings (IPOs)

Some fantastic fortunes have been created recently by venture-funded startups that went public. Initial public offerings of their stock have made numerous millionaires seemingly overnight. For example, when Twitter made its initial public offering for $26 in November 2013, the stock took off, gaining as much as 93 percent within a day and creating 1,600 millionaires. Wow! IPOs have made many millions for the venture investors who provided early-stage financing.

Related: Should You Accept Or Reject VC Funding

The 2012 passage of the Jumpstart Our Small Business Startups (JOBS) Act allows for confidential filing of IPO-related documents. This has made it easier for small business owners who do not want their numbers getting out to the public too soon. There was often concern about investors getting too much preliminary information that could influence their decision to commit to the company. Confidentiality has increased the number of IPO filings in the small business community.

Nonetheless, an IPO takes a lot of time. You'll need to add outside directors to your board, clean up the terms of any sweetheart deals with managers, family, or board members, and have a major accounting firm audit your operations for several years before going public. If you need money today, in other words, an IPO isn't going to provide it.

An IPO is also probably the most expensive way to raise money in terms of the amount you have to lay out up front. The bills for accountants, lawyers, printing, and miscellaneous fees for even a modest IPO will easily reach six figures. For this reason, IPOs are best used to raise amounts at least equal to millions of dollars in equity capital. Venture capitalists consider all these requirements when assessing an investment's potential for going public. Remember that the number of new businesses that go public is quite small.

Related: 3 Alternatives To Start-Up Venture Capital Funding

The Truth About IPOs

Many entrepreneurs dream of going public. But IPOs are not for every firm. The ideal IPO candidate has a record of rapidly growing sales and earnings and operates in a high-profile industry. Some have a lot of one and not much of the other. Low earnings but lots of interest characterize many biotech and internet-related IPOs. These tech companies are usually the ones that generate the huge IPOs and instant millionaires we read about.

Potential Pitfall of VC Funding

Many VCs insist on placing one or more directors on the boards of companies they finance. And these directors are rarely there just to observe. They take an active role in running the company.

VCs also are reluctant to provide financing without obtaining an interest in the companies they back, sometimes a very significant and controlling interest. This can make them just as influential as if they had a majority of the directors on the board, or more so.

Buzzword: Rate of Return

Rate of return is the income or profit earned by an investor on capital invested in a company. It is usually expressed as an annual percentage.

More in Write Your Business Plan

Section 1: the foundation of a business plan, section 2: putting your business plan to work, section 3: selling your product and team, section 4: marketing your business plan, section 5: organizing operations and finances, section 6: getting your business plan to investors.

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Venture Capital Business Plan

As a startup company, one of the most important things you can do is to create a business plan that will secure funding from venture capitalists. But what exactly is a business plan for a venture capitalist?

A business plan is a comprehensive document that outlines the business goals and strategies of a company seeking venture capital investment. It typically includes detailed information about the company’s product or service, market analysis, financial projections, and management team bios.

A business plan for potential investors must be well-written and well-presented to impress those looking to fund your business. It should clearly state why the company needs funding and how it will be used. The financial projections should be realistic and backed up by market research. The management team should be able to demonstrate their expertise in running a business.

If you are a startup company looking for venture capital investment, it is essential to create a well-crafted business plan that will impress potential investors.

Who are Venture Capitalists? 

A venture capitalist (VC) is an individual or firm that invests its capital in startup companies in exchange for ownership equity. They are typically looking for high-growth businesses with solid business plans and a team of experienced entrepreneurs.

VCs can provide much-needed capital to young companies, but they also bring expertise and guidance. In return for their investment, VCs typically require a seat on the company’s board of directors and a share of the profits.

What are Venture Capital Firms? 

A venture capital firm is an organization that invests money in startup companies in exchange for a percentage of ownership in the company. In return for their investment, venture capitalists typically require a seat on the company’s board of directors and a share of the profits.

There are many venture capital firms around the world, but not all of them are interested in investing in every type of company. It is important to do your research and find the right VC firm for your business.

Types of Venture Capital Investment

There are two main types of venture capital investment: equity financing and debt financing.

Equity financing is when VCs invest venture capital in exchange for a percentage of ownership in the company. This type of financing is typically used by early-stage companies that need a large amount of capital to get started. In return for their investment, VCs typically require a seat on the company’s board of directors and a share of the profits.

Debt financing is when VCs provide a loan of venture capital to the company in exchange for interest payments. This type of financing is typically used by more established companies that need a smaller amount of capital. In return for their investment, VCs typically require a personal guarantee from the company’s founders.

There are different stages of investment or funding for startup companies . They are:

Seed Funding

Seed funding is the earliest stage of venture capital investment. It typically goes to businesses just starting and has not yet launched their product or service. Seed funding can be used to cover the costs of research and development, marketing, and other early-stage expenses.

Series A Funding

Series A funding is the next stage of venture capital investment. It is typically used to finance the launch of a product or service, expand into new markets, or hire additional staff. Series A funding can also be used to cover the costs of marketing and advertising.

Series B Funding

Series B funding is a form of venture capital that is usually used to help a company grow at a faster pace. It can be used to finance the expansion of a business into new markets, hire additional staff, or develop new products or services.

Series C Funding

Series C funding is typically used by companies that are ready to go public or be acquired by another company. It can also be used to finance a major expansion, such as the opening of new offices or the launch of a new product line.

How to Raise Venture Capital and VC Funding

There are several ways to raise venture capital for your startup company. One option is to take out loans from family, friends, or banks. Another option is to sell equity in your company to a venture capitalist.

If you are selling equity in your company for venture capital, it is important to have a well-crafted business plan that will impress potential investors. Your business plan should include detailed information about your product or service, market analysis, financial projections, and management team bios.

You can also use crowdfunding platforms to raise capital from a large group of people. crowdfunding is a great way to get your business off the ground, but it is important to remember that you will be giving up a percentage of ownership in your company.

What Capital Raising Options are Available for a Business?

There are a few different types of capital-raising options available for businesses. The most common options are:

One option for raising capital is to take out loans from banks or other financial institutions. This type of financing is typically used by more established businesses that have a good credit history.

Venture Capital

Another option for raising capital is to take out investments from a venture capitalist. A venture capitalist is an individual or firm that invests money in startup companies in exchange for a percentage of ownership in the company.

Crowdfunding

Crowdfunding is a newer form of financing that allows businesses to raise money from a large group of people via the internet. There are several crowdfunding platforms available, such as Kickstarter and Indiegogo.

Initial Public Offering (IPO)

An IPO is when a company sells shares of stock to the public for the first time. This type of financing is typically used by more established companies that are looking to raise a large amount of capital.

Small Business Administration (SBA) Loans

The SBA is a government agency that provides loans to small businesses. These loans are typically used by businesses that may not qualify for traditional bank financing.

Which Capital Raising Option is Right for Your Business?

The type of capital-raising option that is right for your business will depend on many factors, such as the stage of your business, the amount of money you need to raise, and your credit history.

If you are just starting, you may want to consider crowdfunding or an SBA loan. If you have a good credit history, you may be able to get a bank loan. If you are looking to raise a large amount of money, you may want to consider an IPO.

No matter which option you choose, it is important to have a well-crafted business plan that will impress potential investors. Your business plan should include detailed information about your product or service, market analysis, financial projections, and management team bios.

Startup Companies Business Plan Template

If you are a startup company looking for venture capital investment, it is essential to create a well-crafted business plan that will impress potential investors. Use this business plan template to get started:

Executive Summary

The executive summary is a brief overview of your company’s history, mission, and objectives. It should be no more than two pages long.

Company Description

The company description should provide an overview of your business, including your products or services, market analysis, and target customers.

Management Team

The management team section should include bios of your executive team and any other key personnel.

When writing about the management team section of a business plan, you should include bios of your executive team and any other key personnel. This section should also include a description of each team member’s experience and qualifications. This is also a great section to include the management team’s motivation and why the business is raising money.

Financial Projections

The financial projections section should include your company’s historical financial information, as well as your projected income statement, balance sheet, and cash flow statement.

When writing about the financial projections section of a business plan, you should include your company’s historical financial information, as well as your projected income statement, balance sheet, and cash flow statement. This information will help potential investors understand how your company is performing financially and what the future outlook is for your business.

Investor Information

The investor information section should include your company’s equity structure and any terms or conditions that would be attached to an investment.

This business plan template will help you get started on creating a professional and impressive business plan that will attract venture capitalists. Remember to tailor the template to your specific business needs.

Raising Venture Capital FAQs

What is venture capital.

Venture capital is a type of investment that is typically used to finance the launch or expansion of a business. Venture capitalists are usually interested in high-growth companies with the potential to generate large returns.

How do I raise venture capital?

There are several ways to raise venture capital, including taking out loans, selling equity in your company, or using crowdfunding platforms. It is important to have a well-crafted business plan when seeking investment from venture capitalists.

What are the different types of venture capital investment?

The three main types of venture capital investment are seed funding, series A funding, and series B funding. Seed funding is typically used to finance the launch of a new business, series A funding is used to finance the expansion of a business, and series B funding is typically used to finance the go public or being acquired by another company.

• Business Planning
• Venture Funding

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This free sheet contains 100 accelerators and incubators you can apply to today, along with information about the industries they generally invest in.

This free sheet contains 100 VC firms, with information about the countries, cities, stages, and industries they invest in, as well as their contact details.

This free sheet contains all the information about the top 100 unicorns, including their valuation, HQ's location, founded year, name of founders, funding amount and number of employees.

How to Get Venture Capital Funding in 10 Steps in 2024

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Everything you need to raise funding for your startup, including 3,500+ investors, 7 tools, 18 templates and 3 learning resources.

Information about the countries, cities, stages, and industries they invest in, as well as their contact details.

List of 250 startup investors in the AI and Machine Learning industries, along with their Twitter, LinkedIn, and email addresses.

List of startup investors in the BioTech, Health, and Medicine industries, along with their Twitter, LinkedIn, and email addresses.

List of startup investors in the FinTech industry, along with their Twitter, LinkedIn, and email addresses.

Applying for venture capital (VC) funding is an excellent choice for most early-stage startups because the venture capitalists take on the majority of the risk, and there’s no obligation to pay the money back if your startup fails.

However, getting VC funding isn’t as easy as it sounds. There are thousands of startups out there competing for venture capital in an increasingly oversaturated market.

So, it’s important to ensure you fully understand the VC process to improve your and your company’s chances of rising above the competition and receiving startup venture capital from a VC firm, a VC fund, or angel investors.

1) Determine Your Business Valuation

The amount of venture capital funding investors will potentially give you, and your business is directly tied to your startup’s current valuation. In other words, the higher your company’s valuation, the more money you can raise.

So, the first step to getting VC funding is to come up with as accurate an estimate as possible of how much your business is worth.

There are a few different ways to do this, and methods can vary by industry and business type. But, in general, you could try and use some kind of financial model to calculate your business value.

This is easiest to do if you’re already generating some revenue. In this case, you can add the value of all your company’s net assets and subtract any outstanding debts to come up with a business value estimate.

However, many startups seeking venture capital are in their very early stages and are not yet generating revenue, so using the above method can be tricky.

Also, venture capitalists are typically more interested in the future revenue potential of startups rather than their current status.

Therefore, determining the business valuation for startups is often quite speculative.

You’ll want to factor in things like the company's age, the leadership team's characteristics, your startup’s current growth rate, the size of your product’s user base, and revenue/cash flow projections.

You can look at other similar businesses in your industry or work with a professional business appraiser to help you determine your startup’s valuation before you start talking to venture capitalists.

That being said, be prepared for the possibility of the first few venture capitalists you talk to telling you that your business valuation is off — they may suggest a different valuation based on their prior experience and expertise when you start negotiating.

2) Determine How Much Capital You Need

After you come up with your startup’s valuation, the next step you need to take toward getting VC funding is to determine how much capital you need to raise.

For this step, it’s best not to get too fixated on a single number. Instead, come up with several different figures and have actionable plans for using those different amounts of venture capital.

Start by deciding the ideal amount of money you would like to raise. The money could be used to build a new version of your product, continue paying current employees for a year, or hire new key team members to help with expansion, to give you a few examples.

Once you come up with your ideal amount and know what you will use it for, decide on at least two other sums (one above and one below the ideal figure), and lay out plans for how you would use less or more money to keep growing your business.

For most startups, there’s no “right” amount of venture capital to start looking for. The proper amount for your business depends on many variables, including your current stage, your valuation, and how much equity you’re willing to give up in return for VC funding.

Generally, the lower your business’s valuation, the more equity investors will probably ask for. So, if you don’t have a particularly high valuation and you don’t want to give up a significant stake in your business, you should be prepared to get offered less VC than you want.

3) Determine the Best VCs for Your Business

With your startup’s valuation and your venture capital target numbers in hand, you can start looking for venture capitalists to seek funding from.

There are roughly 1,000 venture capital firms in the US alone and countless more private venture capitalists, so you must narrow your options before applying left and right.

Important factors to consider when coming up with a list of potential venture capitalists to talk to include your startup’s current investment stage and funding history, location, and industry.

Investment Stage & Funding History

When trying to find venture capitalists and researching them as part of your quest on how to get venture capital funding for your startup, one of the first things you should find out is what stages of companies they invest in.

There are plenty of VC firms and funds that invest in startups from their seed stages all the way up through their expansion stages. Still, there are also venture capitalists that only focus on seed-stage companies or companies seeking Series A funding.

If your company has already raised pre-seed and seed funding, you wouldn’t want to approach a VC firm that only provides seed funding, for example. You should be looking for VCs that offer Series A funding and beyond.

A VC firm’s location and your company’s location are other important factors to consider when deciding what VCs to apply for funding from.

Some venture capitalists only work with startups based in certain countries or regions, while others invest more globally.

So, before you decide on the best VCs for your business, make sure you determine whether or not they have any geographical restrictions when it comes to providing startup venture capital.

The final factor to consider when deciding what VCs to apply with is your industry. Certain venture capitalists prefer to fund companies in specific sectors, such as fintech or health care, while others may have portfolios that cover a wide range of industries.

You can certainly find venture capital in almost any industry. Still, it’s important to ensure the investors you want to reach out to are interested in your industry before you put effort into applying for venture capital from them.

Once you identify VCs that look like a good option to contact, make a prioritized list based on how likely you think they might be to give you venture capital. 

It’s possible (very likely, even) that you’ll end up contacting all of them anyway, but it’s best to work your way down the list, starting with the VCs that seems like the best fit for your startup’s business stage, location, and industry.

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4) Prepare an Executive Summary & Business Plan

An executive summary and business plan are key assets you need before you go into meetings with venture capitalists.

The executive summary should be a one to two-page, text-based overview of your business that VCs can look over to quickly get an idea of whether or not it might be a good investment opportunity for them.

Remember that VCs receive thousands of applications for venture capital, so they’re not going to read over every detailed business plan they receive when conducting the initial screening of applicants.

Think of the executive summary as a shorter version of your business plan that covers all the main points in a more concise, easy-to-digest fashion. If this overview piques a VCs interest, they can then read some or all of your business plan to get all the more technical, in-depth info.

Your business plan is the most important part of any investment proposal and should contain more complete details about your company’s status and plans for the future.

Make sure to include all your current financials, your plan for growth, how much money you need to grow your business, how you will use said money, and what type of returns investors can expect.

Again, most prospective investors will not read your whole business plan immediately, so organize it well.

Include a table of contents and add summaries of main sections using easy-to-read formattings, such as bullet points and larger font. Feel free to use visuals like tables, charts, and graphics to help convey key information wherever it makes sense.

This allows investors to seek out the information that’s most important to them, and they have the option to read more details in certain areas of your business plan.

5) Build a Pitch Deck

Once you write an executive summary and create a business plan, use them to build a pitch deck that you will present to potential investors. This is one of the most important tools to have available when you meet with venture capitalists.

What Is a Pitch Deck?

A pitch deck is a multi-slide presentation that goes over your startup's potential and investment proposal.

Think of it as a mini version of your business plan — it shouldn’t be as detailed as your business plan, but it should provide a high-level overview of all the key points.

As such, you should aim to cover everything in approximately 10 to 15 slides, using large, easy-to-read fonts, bullet points, and visual assets to convey information concisely.

Each slide should present a clear idea, and you should aim for your presentation to take no more than 20 minutes.

A good rule of thumb to remember is the 10-20-30 rule: shoot for 10 slides, a 20-minute presentation, and use a 30-point font or bigger for all text.

You can also build two versions of your pitch deck: a lean one to present and a more detailed version with additional text that you can send out via email that can be easily understood without a verbal presentation.

Make sure to check these great pitch deck examples for inspiration.

What To Include in a Pitch Deck

Every pitch deck should cover the following 10 topics, ideally using one slide per topic (although you can go into more detail on a couple of them, as needed):

• Introduction: Who you are and why you’re there
• Problem: The problem(s) that your product/service is addressing
• Solution: What is your solution to the aforementioned problem(s)
• Market size and opportunity: Measurable numbers regarding the actual market
• Product: A showcase of your product/service and its technical specifications
• Traction: Data on your startup's current use/growth and goals for the future
• Team: An introduction to key team members, such as co-founders and other executives
• Competition: Who your competition is and how your company is different
• Financials: Details on current revenue and/or projections for future revenue
• Investment and use of funds: How much capital you’re asking for and how you’ll use it

6) Learn How To Read VC Term Sheets

If you’ve done the right preparation on how to get venture capital funding for your startup and started pitching your startup idea to venture capitalists, you’ll hopefully start receiving offers from potential investors. When a VC makes an offer, they typically present you with a term sheet.

What Is a Term Sheet?

A term sheet is a document that lists all the terms of a proposed venture capital funding deal. Term sheets are different from contracts in that they are non-binding. In other words, a term sheet is more of an informational document as opposed to a legal one.

Nonetheless, it’s still important to ensure you know how to read and fully understand a term sheet before deciding whether or not to move forward with a VC funding deal.

What Is Generally Included in a Term Sheet?

Most term sheets include three main sections related to funding, corporate government, and liquidation/exit terms.

Funding Section

In the funding section of a term sheet are all the financial guidelines for the proposed investment deal.

Essential components of this section are how much money the VC offers and how much equity they want in return for its investment.

If any other financial elements are being offered, such as royalties or lines of credit, these will also be outlined in this section.

Corporate Governance

A term sheet's corporate governance section covers the company control distribution among co-founders, VCs, and other stakeholders, specifically related to the company's decision-making.

In short, this section outlines the rules, processes, and practices for making important business decisions. It should go over things like who the board members are, how many votes are required to make a decision, and who has veto rights for certain business decisions.

Liquidation & Exit

Lastly, every term sheet also covers what happens regarding owners, investors, and shareholders if the company is dissolved, liquidated, or acquired.

For example, it will outline things like who gets paid out first and in what order investors and other stakeholders are to get paid if the company gets sold or liquidated.

7) Negotiate Your Terms

Since term sheets are non-binding, you should always try to negotiate any terms you’re not totally comfortable with after reading them.

Let’s say a VC offers you $2 million in exchange for 20% equity in your company, but you weren’t planning on giving up more than 10% equity. In this case, you could discuss the issue with the venture capitalists and offer them less equity for less money.

During this phase, the most important thing to remember is that you should never take a deal you don’t feel 100% good about.

If a VC is unwilling to negotiate the terms of the deal and there are terms you don’t like, don’t hesitate to walk away. Many more VCs out there might offer you a better deal.

Who knows, your company might end up being the next missed opportunity for some big venture capitalist out there.

8) Prepare for Due Diligence

Before any deal goes through, after you agree on its terms, any VC firm, VC fund, or angel will conduct due diligence to ensure everything you’ve told them about your company and its potential is true.

You can make this process easier for the VCs by preparing things like formal financial reports and copies of any legal contracts your company has entered into to provide to them.

You may even want to send these types of things over preemptively so the VCs don’t have to ask you for the info. This makes you look good in the eyes of investors and can help make a deal go more smoothly.

Additionally, be prepared to answer lots of more in-depth follow-up questions about particular aspects of your business, such as the team, your competition, your product development plans, and your marketing/sales plans, among other things.

During this time, you may also want to conduct your due diligence on investors, especially if the VC you’re thinking of working with is not a huge, well-known firm.

Look into information about their past investments and try to find out how things have worked out for past founders who have partnered with the VCs. You could try contacting founders at other companies in their portfolios to do this.

At the end of the day, getting venture capital funding isn’t just about the money — it’s about forming a mutually beneficial partnership that could last for many years. Hence, you want to ensure you choose the right venture capitalists to work with.

9) Seek Legal Advice

Once the due diligence phase is over and both parties are satisfied with what they found, it’s time to start putting together all the legal paperwork to formalize the venture capital funding deal.

For this step, you should hire outside legal experts to consult you and review all contracts and other documents.

Ideally, find a business lawyer with experience in your area and industry. They’ll be most familiar with local and industry-specific laws, rules, and regulations.

For instance, if your startup is in the app industry and is based out of California, find a legal consultant who has previously worked with other tech startups, particularly in Silicon Valley.

10) Close The Deal

Once all the legal documents have been created, the final step of obtaining venture capital is for both parties to sign the required paperwork and officially close the deal.

The exact number and composition of documents to sign can vary from business to business and deal to deal, as well as according to the personal preferences of the attorneys and legal teams who put them together.

In general, the documents you must sign off on to close a VC deal will cover the terms of the primary investment agreement, decision-making/voting rights, stock purchase agreements, indemnification, incorporation, legal opinion, and employment and confidentiality agreements.

Wrapping Up

Understanding how to get venture capital funding for your startup is crucial.

It’s easy enough to find a venture capitalist, but there are many steps you need to take before, during, and after applying for venture capital to close a VC deal and get the money in the bank.

But, if you follow the guidelines discussed above and have a solid business idea and plan, you should be well on your way to obtaining a cost-effective source of funding for your startup to help take it to the next level and achieve its true potential.

And, if you don’t find a venture capitalist willing to back you immediately, try not to get too discouraged. Many startup founders have to pivot on their initial ideas one or several times and keep bootstrapping their companies for some time before they finally get VC funding.

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A Guide to Venture Capital for Startups

Table of Contents

Introduction.

• What is Venture Capital
• Early Stage
• The Process
• Pros of Venture Capital for Startups
• Cons of Venture Capital for Startups

Every year, entrepreneurs create 50 million startups . But despite the millions of startup companies that exist in the world, only about 10% make it past their first year, and 90% of startups ultimately fail. One of the most common problems for startups? Cash flow.

As much as 82% of businesses that fail do so because of cash flow issues. Maybe they burn through funding too quickly, or they may fail to secure enough funding in the first place.

Venture capitalists know the risks of investing in businesses. But with the chance to help fund a unicorn —a private startup valued at over $1 billion—venture capitalists are more willing to take a chance on startups, even if they don’t have any other funding or assets in the early stages of the company.

What is Venture Capital?

Venture capital, sometimes abbreviated as VC, is a form of startup financing and a type of private equity that allows a startup business to offer a large share of their company to an investor or a few investors in exchange for funding or other benefits, like mentorship or talent.

Venture capital can come with high risks and high rewards for both investors and startups. Startups can secure funding through venture capital without needing to make monthly repayments, but they may need to give up some control over the creativity and management of the company. For investors, there’s a huge risk that the startup will fail, but there’s also an opportunity to make money if the startup takes off.

Types of Venture Capital

There are three main types of venture capital that a startup may pursue, depending on how new the business is. For instance, brand new startups that are still finalizing their ideas may pursue pre-seed funding , while businesses that are ready to start selling their product or service may seek out seed funding . Startups that have already had some success in their sales and are ready to expand production may try to secure early-stage funding .

Pre-Seed Funding

Brand new startups may seek VC through pre-seed funding. In this round of funding, a startup is beginning to form its business by creating a business plan and developing its first products or services to sell. 

Although pre-seed funding typically involves a startup earning funding through bootstrapping or getting investments from family and friends, promising startups may gain attention from venture capitalists willing to take a risk on a disruptive idea.

Seed Funding

At the seed stage, a startup has a product or service that is ready to hit the market, but they need capital to start running the business until they make enough sales to turn a profit. This can be a great point for startups to seek out venture capital to fund the business without the stress of a repayment deadline, should sales not hit their goals.

Early-Stage Funding

Early-stage funding often involves rounds of funding that allow businesses to access more capital as they grow. Businesses that started selling a product or service and have had a lot of interest may seek out venture capital in early-stage funding to expand their operations and increase sales.

At this stage, a startup exhibits measurable growth, making it even more attractive for venture capitalists to invest.

The Process of Getting Venture Capital

The startup funding process for securing venture capital can be lengthy because venture capitalists are typically looking for a long-term partnership. They need time to thoroughly vet the startup and determine whether or not to invest. Securing VC funding typically takes about 3 to 9 months from initial contact to funding, although the time-frame will vary case by case. Then, it will be several years from when the firm or investor starts providing funding to when they exit.

Initial Contact and Meeting

Either the startup or the venture capital firm will initiate contact to express interest in funding. There are several ways a startup can reach out to a venture capital firm or investor, such as:

• Sending a cold email
• Connecting at an industry event
• Getting an introduction from someone in your network

After connecting, the parties will set up a meeting to discuss the startup and potential funding.

Share the Business Plan

If the venture capital firm is interested in the startup after the first meeting, they’ll want to see your pitch deck and business plan before you can move on to negotiating and signing a deal. The business plan should be thorough, spelling out the idea, the competition, the overall market, the target audience, how the business will operate, goals for the long-term, and how much funding the startup needs.

Due Diligence

The venture capital firm or investor will do due diligence by investigating the business. The firm or investor will need to thoroughly analyze the company, from its business plan to its management and operations.

The startup should also perform due diligence. Venture capitalists will often own up to half of the company’s equity, so the startup founder should review the VC firm or investor, such as reviewing the success of past investments.

Negotiation and Investment

Now that both parties have expressed interest and have gone through due diligence, they can begin negotiating the agreement terms. The negotiation will focus on how much funding the venture capitalist will invest and how much equity the startup will offer in exchange for the investor.

With the agreement signed, the venture capitalist will provide funding as outlined by the terms in the contract. This may involve providing all funding upfront, or the firm or investor may offer one amount upfront and additional funding as the company moves through series funding rounds. Typically, VC funding terms span 10 or more years , according to the U.S. Securities and Exchange Commission (SEC).

Unlike a bank or lender, a venture capitalist will have some ownership through equity in the company. That means they may be more involved in the operations, even joining the startup’s board of directors or advisory team.

The venture capital firm or investor may help with technical operations, management, or hiring new employees. The venture capitalist can also connect startups to other investors, talent, or customers.

Eventually, the venture capitalist will enact its exit strategy , or way of leaving the company by selling their shares. Typically, a venture capitalist will exit when they feel they have hit the maximum profit possible, or they may exit a startup that is on the down-trend in order to minimize the amount of money they are losing in the investment.

There are multiple exit strategies a venture capitalist might take, including:

• Initial public offering (IPO): The startup goes public, selling shares of the company to the public on the stock market. This is a popular exit strategy that is on the rise. In fact, 2021 was a record year with 1,035 IPOs in the U.S.
• Secondary sale: A venture capitalist may exit by selling their shares to another venture capitalist.
• Mergers and acquisitions (M&A): A merger is when two companies join to form one company, and an acquisition is when one company buys another. In acquisitions and some mergers, one company may buy the majority of shares in the startup, allowing the venture capitalist to exit.
• Buybacks: A successful startup may earn enough revenue and build up enough cash to buy out shares from investors.

Pros of Venture Capital

Venture capital for startups can be an accessible way to gain more than just funding but also to grow your network and gain mentorship, too. Some benefits of venture capital for new and growing businesses include:

Secure Funding Without Repayments

If a startup founder doesn’t feel comfortable making repayments to a bank or other lender by a set deadline, venture capital can be a more accessible path to funding. Venture capital provides funding in exchange for equity, so the repayment is in the form of part ownership of the company.

If the startup does fail, the founder doesn’t have to stress about repaying an institution. The venture capital assumes risk when they offer the investment, and they will have an exit strategy in place to sell their shares.

Tap Into Talent

In addition to funding, venture capitalists may also provide access to mentorship or other expertise. For startup founders who may not have all the skills needed to manage a business, bringing in a venture capitalist can help fill those gaps.

Venture capitalists may also assist in hiring new employees and can even offer connections to talent as the business looks to expand its team.

No Funds or Assets Needed

Although having a growing business that’s already making sales can help make your startup a less risky investment to venture capitalists, there are firms and investors willing to take on startups that are brand new. 

In order to maintain the most control over the company, a startup should seek out other funding options first, but that’s not a requirement. Venture capitalists can offer a large amount of funding, and a startup doesn’t have to have funds or assets before seeking VC.

Cons of Venture Capital

Venture capital has a lot of potential benefits for new businesses. However, venture capital for startups can also come with challenges for founders—from high competition, to get funding in the first place, to losing majority ownership, to venture capitalists over time.

Give Equity

If a startup founder secures a loan or grant to start their business, they don’t have to give up equity, or ownership, in the company. But if they secure funding via venture capital, the VC investor or firm will typically take between 20% and 50% equity, making them a significant owner in the business.

Share Control Over the Company

By exchanging large shares of equity for large amounts of funding from a venture capital investor or firm, a startup is also giving up some of its control over the company. Venture capitalists can help strengthen the business by helping out with operations, but they may also influence the future of the company in a way that the startup founder(s) doesn’t always agree with.

VC negotiations typically offer 20% to 50% equity in a startup, already a significant portion of ownership in the business. But a Crunchbase analysis found that by the time a venture capitalist exits, ownership hits a median of 53%. Some of the companies in the study had much higher VC ownership numbers, such as Etsy (62%), TrueCar (82%), and Sabre (97%).

Difficult to Access

In some ways, venture capital makes it easier for startups to access funding, even if the business is more of an idea than an established company making sales. But there’s still a lot of planning and work that needs to happen before securing venture capital, and there can be a lot of competition to get attention from a firm or investor. In 2022, 5,044,748 new businesses were formed in the U.S. That same year, there were about 1,000 active VC firms in the country.

Startups not only need to have a solid business plan that shows how they are prepared to operate in the long-term, but the business idea needs to be innovative and the startup should have strong potential for growth to stand out from the thousands of other businesses competing for investments.

Is Venture Capital for Startups Right for Your Business?

Venture capital is one of several methods of funding a startup. The exchange of funding for private equity can be a great fit for startups expecting rapid growth, and it’s also a beneficial path for startups who don’t want to be stuck with monthly repayments on a loan. But venture capital for startups comes with its risks, too, including giving up some creative control to another firm or investor. Startup founders will need to weigh the benefits and risks and do their own due diligence when considering whether VC funding is the right path to jumpstarting their business.

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How to Get Venture Capital Funding for a Startup

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New businesses and startup ventures are at the heart of innovation, invention, and growth. When an entrepreneur has an idea for a new business venture but doesn’t quite have the funds and startup capital to begin growing their business, the financing provided by venture capital firms often comes in to save the day.

Venture capital funding can be acquired from specialized VC firms , investment banks, financial institutions, and even well-off investors who’d like to invest in your vision. 

In this guide, we’ll discuss how startups can start walking down the path of venture capital funding and explain some of the best ways to secure VC financing as quickly and efficiently as possible. Let’s get started.

Most VCs will only invest in C corporations . Simplify the process by utilizing a professional online incorporation service .

How to Get VC Funding in 10 Steps

Securing venture capital financing for your startup isn’t an easy process, but it is well worth it in the end, as it allows you to build up and grow your company even if you don’t personally have the funds to do so. 

Let’s discuss several steps your startup can take to get on the path to securing VC funding and building confidence in your startup that venture capitalists can see.

Jump Ahead:

• Know How Venture Capital Works
• Determine if Venture Capital Is Right for You
• Solidify Your Story
• Know Your Market Inside Out
• Perfect Your Pitch Materials
• Calculate Your Startup Valuation
• Prepare for Due Diligence
• Build Your VC Network
• Negotiate Terms
• Close the Deal

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1. Know How Venture Capital Works

Venture capital funding can be a great way to fuel the growth of your startup and turn your entrepreneurial dreams into reality. But before you embark on this journey, it’s important to understand how venture capital works .

Essentially, venture capital is money invested in your startup by firms or individuals known as venture capitalists. They invest in young, high-risk companies expecting high returns. They offer not only funds but also advice and connections. In return, they get a share in your company, meaning you’ll share control. 

Understanding the VC process and its implications will help you make an informed decision on whether it’s the right path for your business.

2. Determine If Venture Capital Funding Is Right for Your Startup

Venture capital funding isn’t right for every startup and largely depends on the goals and personality of the founder. If you’d like to maintain full control over everything you do in your business, then getting VC funding may not be the best choice. Similarly, if you are already profitable and don’t need VC funds in order to grow your business, you may consider finding a mentor instead. 

Companies that are generally considered ready for venture capital usually have the following characteristics:

• Unique Value Proposition (UVP)
• Strong Management Team
• Large Addressable Market
• Scalable Business Model
• Solid Sales Funnel

Venture capital, although widely pursued, may not align with every entrepreneur’s objectives, making it crucial to explore alternative funding options that better cater to your business needs and goals. 

3. Solidify Your Story

Startup fundraising is more than a mere transaction — it is an art that requires finesse and a strategic approach. 

Successfully securing funding involves understanding the intricacies of the investor landscape, crafting a compelling narrative, and effectively communicating the startup’s vision and potential. 

Founders need to craft a cohesive and compelling story about the “ why ” and “ why now ” of their venture. The story and pitch materials should seamlessly weave together the purpose, mission, and vision of the startup, illustrating the problem being solved and the unique value proposition. 

This storytelling approach captures investors’ attention, resonates with their investment criteria, and instills confidence in the founders’ ability to seize the current market opportunity.

For a deeper dive into the art of crafting your startup story , read our comprehensive guide.

4. Know Your Market Inside Out

Understanding your market is crucial for success. This involves breaking down your Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) . Let’s unpack these terms.

• Total Addressable Market (TAM): This is the whole pie or the total market demand for your product or service. It’s essential to know how big your TAM is because it shows the size of the opportunity. Remember, venture capitalists (VCs) love big markets.
• Serviceable Available Market (SAM): This is the slice of the pie you can realistically reach with your product or service. This part of the market is within your reach, and it’s a subset of your TAM.
• Serviceable Obtainable Market (SOM): This is the portion of SAM that you can realistically capture in the short term. It’s like the first bite of your slice. 

Understanding these terms will help you determine your value proposition — the unique value you offer to customers that sets you apart from the competition.

In addition to knowing your market, here are a few more quick tips for success:

• Know Your Competition: Identify who they are and understand their strengths and weaknesses. Always be ready to explain why your solution is better.
• Stay on Top of Market Trends: Keep an eye on changes in the market, like new technologies or changes in regulations. Adaptation is key.
• Plan Your Customer Acquisition: Be clear on how you will attract and retain customers. It should be cost-effective and align with your target market.
• Show Scalability: Have a plan to grow your business quickly. VCs want to see that your business can expand rapidly.

Last but not least, keep in mind that VCs typically seek a minimum 10x return on their investment due to the high risk and uncertain nature of the startups they invest in.

It’s important to note that the 10x rule is not an absolute requirement for every startup. Some businesses may have different goals or operate in niche markets where smaller returns are still considered successful. However, being aware of this rule and its implications can help founders navigate the startup landscape and communicate effectively with investors.

5. Perfect Your Pitch Materials

Your pitch materials are essential in capturing the attention and interest of venture capitalists. These materials include your business plan, pitch deck, and any supporting documents that showcase your business idea and its potential for growth.

Business Plan

A business plan is a document that outlines your vision, strategy, and financial projections for your venture. It serves as a roadmap that investors can refer to in order to understand your business, its potential, and the return on their investment.

Start your business plan with an executive summary that provides a concise overview of your company. Highlight the key aspects of your business, such as its:

• Target Market
• Growth Potential

Build a winning business plan for your startup with LivePlan , our #1 recommended business plan software.

A pitch deck is a concise presentation consisting of slides that conveys the key aspects of a business, product, or idea to potential investors or stakeholders. When crafting your pitch deck, be sure to include the following key elements:

• Company purpose
• Market analysis
• Business model
• Product or service
• Financial projections

Remember, your pitch deck should be visually appealing, concise, and easy to understand. Use bullet points, graphics, and charts to convey information effectively. Practice your pitch to ensure a confident and engaging delivery.

Learn more about pitch decks and discover step-by-step instructions for creating a compelling one by visiting our guide on how to create a pitch deck for your startup .

6. Calculate Your Startup Valuation

Valuing your startup is an important step before seeking venture capital funding. It helps you determine the worth of your business and provides a basis for negotiating investment terms.

There’s no one-size-fits-all method, but here are a few steps to guide you:

• Know the Landscape: Understand the success rate and valuation ranges in your field. This varies by geography, stage, and sector, so use data relevant to your startup.
• Value Your Present: Your startup’s valuation should reflect what you’ve achieved. This is about one-third of your total valuation.
• Value Your Future: About two-thirds of your valuation should represent your future plans, including market size and growth strategies.

Remember, your startup’s valuation isn’t just a number—it’s a reflection of your hard work, innovation, and potential for growth. It’s your chance to show venture capitalists why your business is worth their investment.

Learn the ins and outs of startup valuation by reading our comprehensive guide on how to value a startup .

7. Prepare for Due Diligence

Due diligence is a term that describes the careful examination venture capitalists carry out before they invest in your business. It’s like a detailed ‘background check’ for your company.

What Documents Are Required?

During due diligence, investors will want to see several important documents. These typically include:

• Business Plan: This outlines your business strategy and goals.
• Financial Statements: These include profit and loss statements, balance sheets, and cash flow statements.
• Legal Documents: Such as articles of incorporation, bylaws, and contracts.
• Intellectual Property (IP) Documentation: If your business relies on unique inventions, designs, or trademarks.
• Team and Market Information: Details about your team and the market you operate in.

Check out Y Combinator’s Series A Diligence Checklist to help you further navigate investor requirements.

The goal of due diligence is to confirm that your business is a good investment opportunity. By preparing these documents ahead of time, you can speed up the process and increase your chances of securing funding. 

Be ready to answer any questions that might come up in a clear and confident way. Your preparation can go a long way in building trust with potential investors.

Additionally, hiring a lawyer to assist with the due diligence process when seeking venture capital funding is highly recommended for several reasons:

• Legal Expertise: Lawyers are trained to understand and interpret laws and regulations that your startup needs to comply with.
• Documentation Review: They can help organize and review the vast number of legal documents that need to be provided during the due diligence process, including intellectual property documents, incorporation papers, and more.
• Risk Mitigation: Lawyers can help identify any potential legal risks or liabilities that could affect the investment. 
• Negotiations and Agreements: Legal professionals can guide you during the negotiation process and help draft and review term sheets , shareholder agreements, and other important investment-related documents.
• Saving Time: Lawyers can significantly speed up the due diligence process by knowing what information is needed and how it should be presented.

8. Build Your VC Network

Many VC deals happen within a network of known contacts. So, while it’s critical to have a compelling business model, robust technology, or a unique value proposition, being well-connected within the industry can be a significant advantage. Here are a few tips to begin building your venture capital network :

Leverage Your Existing Contacts

Reach out to your network of contacts, including friends, family, former colleagues, mentors, and industry peers; ask if they know any venture capitalists or angel investors who might be interested in your venture. 

An introduction from someone the investor knows and trusts serves as a warm introduction. It helps you bypass some of the initial skepticism or barriers that come with cold outreach. Warm introductions increase the chances of getting your foot in the door and having your pitch heard.

Even if your existing contacts don’t have direct connections to investors, they may know someone who can serve as a mentor or advisor to you. This person could have their own network of investors, providing valuable guidance and introductions.

The power of networking lies in the “six degrees of separation” concept, which suggests that everyone is connected to each other through a chain of six or fewer acquaintances.

Do Your Research and Create a List

Research venture capital firms or individual investors and understand which ones are most likely to invest in your industry and type of startup. Some VC firms specialize in certain types of businesses and only invest in what they know. Others are more flexible and invest in a wide range of startups in their VC portfolio. 

Creating a list of potential venture capitalists is a valuable step in the process. You can utilize online resources, such as directories or industry-specific websites, to find information about various VC firms and their investment criteria. Here are a few resources we recommend:

Don’t Overlook the Power of Social Media

Many venture capitalists maintain a professional presence on social media platforms like LinkedIn , where they share insights, connect with entrepreneurs, and announce investment opportunities. Engaging with their content and establishing connections can provide you with valuable networking opportunities.

Attend Meetups and Other Networking Events

You can also consider attending in-person meetups, conferences, or industry events where venture capitalists might be present. These gatherings offer a chance to interact directly with investors, showcase your startup, and build meaningful relationships.

9. Negotiate Terms

Once you’ve found a VC and successfully pitched your idea, you might get the opportunity to discuss a partnership. This brings us to an important step: negotiating terms.

What Is a Term Sheet?

Think of a term sheet as a map for your partnership with the VC. It’s a document that outlines key points of the agreement between you and the investor. It’s not a legal promise but more like a handshake on paper.

Main Sections of a Term Sheet

Here are some of the important parts you’ll see in a term sheet:

• Valuation: Can include pre-money valuation (the company’s estimated worth before investment or financing) and post-money valuation (the company’s estimated worth after investment or financing).
• Investment amount: The amount of money that the venture capitalist (or other investors) are willing to invest in the company.
• Equity stake: Percentage of the company that the investor would own after the investment.
• Liquidation preference: In the event that the company is sold, this determines the payout order. Investors with a liquidation preference get paid before those without.
• Anti-dilution provisions: These protect the investor from future rounds of funding diluting their stake in the company.
• Voting rights: These terms outline the control the investor has over business decisions.
• Board composition: Details about who will have seats on the company’s board of directors.
• Exit strategy: Plan for the investor to eventually realize their investment, often through a sale of the company or an initial public offering (IPO).

Negotiating the Term Sheet

When it comes to mastering term sheet negotiations, keep these tips in mind:

• Understand all terms: It’s your company, and you need to know what you’re agreeing to.
• Don’t be afraid to ask questions: If you don’t understand something, ask for clarification.
• Seek a fair deal, not just any deal: Make sure the terms benefit both you and the VC.

In this process, having a lawyer specializing in startups or venture capital is extremely useful. They can help make sure the agreement is fair, legal, and right for your business.

10. Close the Deal

Closing a venture capital deal marks the beginning of an exciting new journey. Here are some key elements that are typically involved in closing a VC deal:

Further Due Diligence

After a term sheet is signed, more intensive due diligence may occur. This could involve a deep dive into the company’s financials, technology, legal issues, market analysis, etc.

Finalizing Investment Agreement

Based on the due diligence and the term sheet, both parties negotiate and finalize the investment agreement. This document is legally binding and outlines in detail the rights and obligations of the startup and the investors.

Legal Review and Documentation

Lawyers from both sides will review the agreement, ensuring it’s legally sound and that it protects the interests of all parties involved. Any necessary legal documentation such as amendments to the company’s Articles of Incorporation, new Shareholders Agreements, or Subscription Agreements will be prepared.

Closing Meeting and Fund Transfer

Once the final agreement is signed, a closing meeting is usually held. This meeting signifies the end of the negotiation and due diligence process. After the closing meeting, funds are usually transferred from the venture capital firm to the startup’s bank account.

Post-Closing Obligations

After the deal is closed, the startup will have obligations to its new investors, such as providing regular updates about its business operations, financial status, etc.

Post-Investment

Once the deal is closed, your relationship with the venture capitalist will shift from negotiation to collaboration. The venture capitalist will typically become an active partner, offering strategic guidance and leveraging their networks to support your business’s growth. Regular communication and updates will be essential to maintain a strong partnership.

Milestone Tracking

Venture capitalists often set specific milestones or targets that your business should aim to achieve. These milestones serve as benchmarks to measure progress and help demonstrate the growth potential of your business. Regularly track and report on your progress to keep the venture capitalist informed and build trust.

Remember, this is a generalized process, and the exact steps can vary depending on the specifics of the deal, the countries involved, the VC firm’s process, etc. The timeframe for this process can range from a few weeks to several months, depending on the complexity of the deal and the level of due diligence required.

Additional tips:

• A personal website is essential for founders before pitching to venture capital investors. It showcases their expertise, builds trust, and establishes a strong personal brand.
• Profiles on platforms like AngelList and Crunchbase (and Startup Savant !) are also vital for founders seeking venture capital. They provide visibility, credibility, and access to a wide network of investors. 
• Investors pay attention to the dynamics within a team during the pitch process. A cohesive and respectful team sends a powerful message about the startup’s culture and its potential for long-term success. 
• Leveraging contacts, seeking introductions, and securing an advisor from the venture capital industry can provide founders with a competitive edge, access to valuable expertise, and increased opportunities for successful fundraising.

Final Thoughts

Obtaining venture capital funding for your startup might seem like a big mountain to climb, but it is very achievable when you follow the right steps. 

Start by developing a strong business plan that tells the story of your idea. Practice your pitch and be prepared to present your idea passionately and persuasively. 

Remember, securing funding is about building relationships , so don’t rush the process. Engage with venture capitalists, other entrepreneurs, and industry experts to get insights, advice, and potential leads. Attend industry events, join online communities, and leverage platforms like LinkedIn to build and nurture these relationships. 

Finally, be patient and persistent. Securing venture capital is a challenging process that takes time, effort, and resilience. You may face rejection, but don’t let that discourage you. Learn from each experience and continue to refine your pitch and business plan.

Explore More VC Resources

• Best Venture Capital Books
• How to Invest in Venture Capital
• Startup Investing Platforms
• Venture Capital Terms You Should Know
• Raising Venture Capital 101 with Jules Miller of Mindset Ventures
• Strategic Growth & The Danger of Vanity Metrics with Kyle York of York IE
• Tips for Navigating Economic Downturn From Venture Capitalist Andrew Gershfeld
• Anyone Can Be a Venture Capitalist with Sweater Ventures

Further Reading

• What Is a Startup? July 2, 2024
• Startup Ideas July 3, 2024
• How to Start a Startup in 10 Steps (2024 Guide) July 18, 2024

Topics to Explore

• Startup Ideas
• Startup Basics
• Startup Leadership
• Startup Marketing
• Startup Funding

Browse Tags

Fund Your Business

Small business funding is a vital step to start or accelerate the growth of your business. Learn how to get ready for funding, review your options, master the art of pitching, and more.

How to get funding

• Funding options
• Pitch your business
• Manage funding

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Every funding option differs in availability, terms, amount, eligibility criteria, and compatibility with your business needs. Check out our growing list of funding sources to identify the best option for your business.

Noah Parsons

Aug. 1, 2024

Jul. 2, 2024

How to Successfully Pitch Your Business Idea

You must know how to pitch your business, even if you don’t plan to pursue funding. Here’s what you need to cover to make any pitch successful.

11 Slides to Include in Your Pitch Deck

Use this proven pitch deck structure to increase your chances of generating interest from potential investors.

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10 Things the Bank Asks for When Applying for a Loan

What is the best funding option for a business?

The best funding source depends on factors like the stage of your business, creditworthiness, and industry. Typically some combination of self-funding, friends and family financing, and a business loan is your best option.

What questions will investors ask?

You need to prepare for what investors will ask. If you don’t have answers to questions like ‘What problem do you solve?’ or ‘How will you make money’ then you’ll struggle to nail your pitch.

Can you get a business loan with bad credit?

It is possible to get a loan even with bad credit. However, the terms, total, and application process will likely be unfavorable. Luckily, there are things you can do to improve your chances of being approved.

Should you borrow from friends and family?

Friends and family financing is one of the most common funding methods for new businesses. To ensure there are no problems, you need to treat it like a loan or other more formal funding source.

What makes a great pitch?

A great pitch tells a real story, cuts out unnecessary details, demonstrates traction, and is backed up with facts and data.

Small business funding guides

Do you actually need additional funding to start a business? How much do you need? How do you successfully get funding? We have answers to all of these questions, plus additional tips to improve your chances of getting funding.

Funding and financing options

There is a wide variety of funding and financing methods available to small businesses. Learn what makes them unique and how to choose the best option(s) for your business.

How to create your business pitch

When seeking funds, you’ll likely have to pitch your business. Learn what you need to prepare and how to confidently pitch your business.

How to manage funding

An often overlooked part of pursuing funding is how you will track and use it after you receive it. Learn how to get the most from your additional cash and track its use for you and any external stakeholders.

Funding your business FAQ

What is the best source of funding for small businesses?

The best source of funding for your specific business depends on numerous factors like the stage of your business, creditworthiness, and industry. Typically some combination of self-funding, friends and family and financing, and eventually some sort of business loan is your best funding source.

How do startups get funding?

Startups and small businesses typically secure funding through loans, friends and family, angel investors, venture capital, grants, or crowdfunding. To boost your chances you need to be actively networking, craft a compelling pitch, and write a detailed business plan.

How do you get funding for an existing business?

Existing businesses can seek funding through friends and family, loans, lines of credit, investors, grants, or revenue-based financing. To better your chances, it’s crucial to demonstrate financial stability and growth potential.

What is the most common startup funding?

The most common startup funding is often personal savings, friends and family, or loans.

How can you fund a business without a loan?

Businesses can be funded without loans through bootstrapping, crowdfunding, grants, angel investors, venture capital, or investments from friends and family.

Securing funding can be challenging, as it depends on factors like the business’s stage, financial health, and the investor’s appetite for risk. A strong pitch, business plan, and network can improve your chances.

How much should I ask for when funding a startup?

Determine the amount needed by creating a detailed financial plan, considering costs, projected revenues, and growth goals. Be sure to request a realistic amount to justify the use to investors.

Can you get funding with just an idea?

While difficult, it’s possible to secure funding with just an idea, particularly if you have a strong network, industry experience, or an innovative concept. While traditional options like a business loan will require more information and traction, some early-stage investors or incubator programs may be interested.

What are examples of funding?

Examples of funding include self-funding, bank loans, lines of credit, grants, angel investments, venture capital, crowdfunding, and investments from friends and family.

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Types of Venture Capital Funds: Understanding VC Stages, Financing Methods, Risks, and More

Venture Capital (VC) plays a pivotal role in the entrepreneurial ecosystem, fueling the growth of innovative startups and established companies alike. This comprehensive guide delves into the various stages of venture capital funding, from early seed investments to late-stage and bridge financing. It also explores exit strategies and offers real-world examples to elucidate the VC landscape. Whether you're an aspiring entrepreneur or an investor, understanding these facets of venture capital is key to navigating the complex world of business finance.

An Overview of the Three Principal Types of Venture Capital Funding

Venture capital funding, a critical catalyst for business growth and innovation, encompasses more than just the three principal types: early-stage financing, expansion financing, and acquisition/buyout financing. Within these broad categories lie several specialized types of funding, each tailored to different stages of a company's lifecycle and specific needs.

Seed financing, for instance, caters to businesses at the idea or concept stage, providing the initial capital to get off the ground. Startup financing then takes over, helping slightly more established businesses that are ready to market their product or service. First-stage financing supports those in the early stages of selling their products.

As businesses grow, they may seek second-stage financing for expansion, or bridge financing to cover short-term needs while preparing for a significant event like an IPO. Third-stage (mezzanine) financing is often used for further expansion or to prepare a company for acquisition or IPO.

In the acquisition/buyout category, acquisition financing helps businesses acquire specific assets or other companies, while management (leveraged buyout) financing is used to buy out a company's existing owners.

Each of these funding types comes with its own set of criteria, risks, and opportunities. The following sections will delve deeper into these various forms of venture capital funding, providing insights into what they entail, who typically funds them, the risks involved, potential exit strategies, and real-world examples to illustrate these concepts in action. This comprehensive exploration aims to provide a clear understanding of the intricate landscape of venture capital funding.

Related resources:

• A Quick Overview on VC Fund Structure
• How To Find Private Investors For Startups

Early Stage Financing

Early-stage financing is provided to companies to set up initial operations and basic production. This type of financing supports activities such as product development, marketing, commercial manufacturing, and sales. It's intended for companies in the development phase, which are typically beyond the seed stage and require larger sums of capital to start operations once they have a viable product or service​​. Early-stage companies are generally defined as having tested their prototypes, refined their service model, and prepared their business plan. They might be generating early revenue but are usually not profitable yet​​​​​​.

An example of a business that would seek early-stage financing is a tech startup that has developed a working prototype of a new software or hardware product. This company would have validated its product idea, perhaps through initial customer feedback or small-scale deployments, and now requires funding to scale up its production, enhance its product features, and expand its market reach.

Regarding the overall market related to early-stage financing, the trends in 2023 indicate a mixed picture . While venture capital investment in Q3 2023 remained flat, with VC-backed companies raising $29.8 billion, which is comparable to the $29.9 billion raised in Q2 2023, there is a continued interest in certain areas like generative AI. Although economic uncertainty and the overhang from existing money in the market have limited investor appetite, early-stage companies are expected to experience more success in fundraising compared to companies trying to raise funds in later-stage rounds​​. However, the fund formation has continued to decline since the highs of Q1 2022, and Q3 2023 ranked as the lowest quarter for fund formation since Q3 2017.

Expansion Financing

Expansion stage financing is a type of funding used to scale businesses and expand their market share. This stage is typically reached when a startup is growing, the product is selling, and the company is generating significant revenue. It characterizes a new phase of development, often involving expansion into new markets and distribution channels, and can also be used for external growth through mergers and acquisitions​​. This stage of financing is usually pursued after a company has moved past the startup and early stages of its business life cycle​​.

An example of a business that would seek expansion financing is a tech startup that has successfully launched a product in a local market and is now looking to expand its reach nationally or internationally. Such a company might use expansion financing to enter new markets, scale up operations, increase production capacity, or diversify and differentiate its product lines.

The overall market trend related to expansion financing, the venture capital landscape saw a slight increase in deal count and invested capital in Q3 2023 compared to Q2 2023. Cooley reported 225 venture capital financings in Q3 2023 , representing $6.8 billion in invested capital, an increase from 221 financings and $6.4 billion in the previous quarter. This upward trend began in Q2 2023 and ended the steady decline observed from Q4 2021 to Q1 2023. However, this increase in deal count was more pronounced in early rounds, with mid-stage rounds (which include expansion stage) showing a decrease, and late-stage rounds remaining consistent with the previous quarter​​.

Despite these upward trends in deal numbers and amounts raised, the percentage of down rounds increased to 27% of deals for Q3 2023, up from 21% in Q2 2023. This marks the highest percentage of down rounds and the lowest percentage of up rounds since 2014, indicating a challenging environment for raising funds at higher valuations​

Acquisition/Buyout Financing

Acquisition/buyout financing refers to the capital sources obtained to fund the purchase of a business, comprising a mix of debt and equity in the capital structure. It is specifically used in transactions where a business, usually by a private equity firm or a financial sponsor, is acquired with debt constituting a significant portion of the financing​​​​. The use of leverage (borrowed capital) is a key characteristic of this type of financing, especially in leveraged buyouts (LBOs), where the acquired company's assets are often used as collateral for the loans.

An example of a business that might seek acquisition/buyout financing is a medium-sized enterprise in a mature industry, with stable cash flows and strong market presence, looking to acquire a competitor or a complementary business to consolidate market share, expand product lines, or enter new markets.

Regarding the overall market trend for acquisition/buyout financing, it has faced significant challenges over the past year, akin to the most prolonged challenges since the 2008–2009 financial crisis. Factors like rising interest rates, geopolitical tensions, and recession fears have led to a sustained downturn in deal activity, which bottomed out in the first quarter of 2023. However, since then, there has been a cautious return to deal-making, and M&A activity seems to be stabilizing, although the pace of recovery varies across regions and sectors​​.

According to BCG in 2023, M&A activity was significantly subdued compared to the frenzy observed in 2021 and early 2022. Through the end of August 2023, there was a 14% decline in deal volume and a 41% drop in deal value compared to the same period in 2022​​. Additionally, private equity and venture capital sectors experienced dramatic declines in deal activity, with existing investments facing sharp devaluations and numerous "down rounds" for VC-backed companies​​. This trend indicates a more cautious approach in acquisition/buyout financing, influenced by broader economic uncertainties and tighter financing conditions.

Related resource: What is Acquihiring? A Comprehensive Guide for Founders

What About Seed Financing, Bridge Financing, and the Other Types of Venture Capital Funding I’ve Heard About?

VC funding is not a one-size-fits-all approach; it encompasses a diverse range of types beyond the principal categories of early stage, expansion, and acquisition/buyout financing. These include specialized forms such as seed financing, which nurtures business ideas into reality, and bridge financing, which provides interim support in critical business phases.

In the following sections, we'll explore in detail:

• Types of Early Stage Financing: This includes seed financing, startup financing, and first stage financing, each addressing different needs of nascent businesses.
• Types of Expansion Financing: Here, we'll look at second-stage financing, bridge financing, and third-stage (mezzanine) financing, crucial for businesses in their growth phase.
• Types of Acquisition/Buyout Financing: Covering acquisition financing and management (leveraged buyout) financing, this section addresses the needs of businesses looking to expand through acquisitions.

Each of these sections will delve into the specifics of what each financing type entails, who typically provides and receives the funding, associated risks, potential exit strategies, and real-world examples.

Related resource: Understanding the Advantages and Disadvantages of Venture Capital for StartupsTypes of Early-Stage Financing

Seed Financing

Seed financing, the earliest stage in the capital-raising process for startups, is fundamental for getting a business off the ground. It is used for several initial operations, including market research, prototype development, and covering essential expenses like legal fees. This form of financing is typically equity-based, meaning investors provide capital in exchange for an equity interest in the company.

Startups that receive seed funding are at their inception stage, and have a business idea or concept/ prototype. These businesses are typically pre-revenue and are seeking funds to turn their ideas into a viable product or service.

Seed financing is often sourced from family members, friends, or angel investors, who are pivotal in this stage due to their ability to provide substantial capital. Some VCs or banks may shy away from seed financing due to its high risk. It's considered the riskiest form of investing, as it involves investing in a company far before it generates revenue or profits. That being said there are also many VCs that focus solely on investing at the seed stage. The success of a seed investment heavily depends on the viability of the startup's idea and the management's ability to execute it. If this is strong then the likelihood of finding seed funding from any investor is strong.

Related resource: List of VCs investing at the Seed stage from our Connect investor database

Seed financing is considered the riskiest form of investing in the venture capital spectrum. The primary risk stems from investing in a business far before it has proven its concept in the market, often without a clear path to profitability. This high risk, however, is balanced by the potential for significant returns if the startup succeeds.

Exit strategies for seed investors might include acquisition by another company or an Initial Public Offering (IPO), but these are long-term outcomes. Another exit strategy could be the sale of shares during later funding rounds to other investors at a higher valuation.

Despite its risky nature, seed financing can yield high returns. A famous example is Peter Thiel’s investment in Facebook. In 2004, Thiel became Facebook’s first outside investor with a $500,000 contribution for a 10% stake, eventually earning over $1 billion from his investment ( source ).

Related resource: Seed Funding for Startups 101: A Complete Guide

Startup Financing

Startup financing refers to the capital used to fund a new business venture. This financing is essential for various activities, such as launching a company, buying real estate, hiring a team, purchasing necessary tools, launching a product, or growing the business. It can take the form of either equity or debt financing. Equity financing, often sourced from venture capital firms, provides capital in exchange for partial ownership, whereas debt financing, like taking a loan or opening a credit card, must be repaid with interest​​.

Startup financing is commonly funded by angel investors, venture capital firms, banks, and sometimes through government grants or crowdfunding platforms. These entities typically fund startups that exhibit high growth potential, innovation, and a solid business model.

Startups that receive funding usually have a unique business idea or a promising market opportunity. They are often in their early stages but have moved past the initial concept phase and have a detailed business plan and, in some cases, a minimum viable product (MVP).

Investing in startups is inherently risky, given that about 90% of startups fail. The risks include market risks, where even a great idea may fail if there's no market for it or due to unforeseen changes in the market. The potential for high returns is counterbalanced by the high probability of failure​​​​.

Common exit strategies for equity financing include acquisition by another company or an Initial Public Offering (IPO). Acquisition allows access to resources and can lead to economies of scale and diversification. An IPO provides access to capital for further growth or debt repayment. However, these strategies come with challenges like integration issues, financial risks, and regulatory hurdles​​​​​​.

A classic example of successful startup financing is Airbnb. In its early stages, Airbnb raised funds from venture capital firms and angel investors, which helped it scale its operations globally and eventually led to a successful IPO in 2020.

First Stage Financing

First-stage financing, often referred to as Series A funding, is a pivotal moment for startups, marking their first significant round of venture capital financing. This phase is crucial for companies that have moved beyond the seed stage, demonstrating initial market traction and a working prototype of their product or service. The primary uses of Series A funds include further product development, bolstering marketing and sales efforts, and expanding into new markets.

The funding for first-stage financing often comes from a variety of sources. Initially, startups might rely on funds from family, friends, or angel investors. As they progress, professional investors like venture capitalists or angel investors become significant sources of capital during the seed round, which is typically the first formal investment round in a startup​​​​.

As for who gets funded, it's generally startups that have moved beyond the initial concept stage and are ready to ramp up their operations. This involves increasing production and sales, indicating that the company's business model is being validated​​.

Typical exit strategies for investors within a 5-7 year timeframe include:

• IPO (Initial Public Offering): Offering shares on a stock exchange, providing liquidity and potential high returns.
• Acquisition: Selling the company to another entity for an immediate exit and payout.
• Secondary Offering: Selling shares to private equity firms or institutional investors for liquidity.

An example of a company that successfully went through first-stage financing, specifically Series A funding, is YouTube. In 2005, YouTube raised $3.5 million in its Series A funding round, with venture capitalists as the primary investors. This funding was crucial in helping YouTube expand its services and grow its user base, ultimately leading to its position as a major player in online video and social media​

Types of Acquisition/Buyout Financing

Acquisition financing.

Acquisition financing is a process that involves various sources of capital used to fund a merger or acquisition. This type of financing is typically more intricate than other forms of financing due to the need for a blend of different financing methods to optimize costs and meet specific transaction requirements. Various alternatives available for acquisition financing include stock swap transactions, equity, all-cash deals, debt financing, mezzanine or quasi-debt, and leveraged buyouts (LBOs).

Acquisition financing is used to fund the purchase of another company or its assets. It can be utilized for several purposes, including:

• Expanding a company's operations or market reach.
• Acquiring new technologies or products.
• Diversifying the company’s holdings.
• Eliminating competition by buying out competitors.

The financing for acquisitions comes from multiple sources, each with its own characteristics and implications:

• Stock Swap Transaction: This involves the exchange of the acquirer's stock with that of the target company. It's common in private company acquisitions where the target's owner remains actively involved in the business.
• Equity: Equity financing is typically more expensive but offers more flexibility, especially suitable for companies in unstable industries or with unsteady cash flows.
• Cash Acquisition: In an all-cash deal, shares are swapped for cash, often used when the target company is smaller and has lower cash reserves.
• Debt Financing: This is a preferred method for many acquisitions, often considered the most cost-effective. Debt can be secured by the assets of the target company, including real estate, inventory, or intellectual property.
• Mezzanine or Quasi Debt: This is a hybrid form of financing that combines elements of debt and equity and can be converted into equity.
• Leveraged Buyout (LBO): In an LBO, the assets of the acquiring and target companies are used as collateral. LBOs are common in situations where the target company has a strong asset base and generates consistent cash flows​​.

Acquisition financing is typically sought by companies looking to acquire other businesses. This includes large corporations expanding their market share, medium-sized businesses seeking growth through acquisition, or even smaller firms aiming to consolidate their market position.

Risks in acquisition financing vary based on the type of loan, its term, and the amount of financing. The risks include:

• Type of Financing Provider: The wrong type of financing provider can pose significant risks, especially if the loan is collateralized, as in the case with most bank loans.
• Pressure from Lenders: Banks can exert pressure for repayment, particularly if they view the company primarily as asset collateral rather than focusing on future cash flow growth.
• Capital Shortage Post-Acquisition: Acquiring companies need additional capital post-acquisition for growth, and being capital-short can be a significant risk​​.

Exit strategies for investors or owners in acquisition financing might include:

• Increasing personal salary and bonuses before exiting the company.
• Selling shares to existing partners upon retirement.
• Liquidating assets at market value.
• Going through an initial public offering (IPO).
• Merging with another business or being acquired.
• Selling the company outright​​.

A prominent example of acquisition financing is Amazon's acquisition of Whole Foods Market . In 2017, Amazon acquired Whole Foods Market in a $13.7 billion all-cash deal. This acquisition allowed Amazon to expand significantly into physical retail stores and further its goal of selling more groceries. The deal involved Amazon paying a premium of about 27% over Whole Foods Market's closing price, indicating a substantial investment in future growth prospects

Management (Leveraged Buyout) Financing

A Management Buyout (MBO), a type of leveraged buyout (LBO), is a corporate finance transaction where a company's management team acquires the business by borrowing funds. This usually occurs when an owner-founder is retiring or a majority shareholder wants to exit. The management believes that they can leverage their expertise to grow the business and improve operations, generating a return on investment. Lenders often favor MBOs as they ensure business continuity and maintain customer confidence.

Financing for MBOs can come from various sources:

• Debt Financing: This is a common method where management borrows from banks, though banks may view MBOs as risky.
• Seller/Owner Financing: The seller may finance the buyout through a note, which is paid back from the company’s earnings over time.
• Private Equity Financing: Private equity funds may lend capital in exchange for a share of the company, with management also contributing financially.
• Mezzanine Financing: This is a mix of debt and equity that enhances the equity investment of the management team without diluting ownership​​.

Risks associated with MBOs include:

• Interest Rate Risk: High interest rates on financing agreements can be a challenge.
• Operational Risk: Business efficiencies anticipated may not materialize, causing operational problems.
• Industry Shock Risk: An unexpected industry shock can adversely affect the success of the MBO​​.

Exit strategies for MBOs typically align with general business exit strategies and may include:

• Increasing personal salary and bonuses before exiting.
• Selling shares to partners or through an initial public offering (IPO).
• Liquidating assets.
• Merging with or being acquired by another business.
• Outright sale of the company.

A classic example of an MBO is the acquisition of Dell Inc. by its founder, Michael Dell, and a private equity firm, Silver Lake Partners, in 2013. The deal valued at about $24.4 billion, involved Michael Dell and the investment firm buying back Dell from public shareholders. This buyout was funded through a combination of Dell's and Silver Lake's cash along with debt financing. The MBO aimed to transition Dell from a publicly traded company to a privately held one, allowing more flexibility in restructuring the business without public market pressures. ​

How to Obtain Venture Capital Funding

Obtaining venture capital funding is a multi-step process that requires preparation, strategic networking, and clear communication. Here’s a guide on how companies can navigate this process.

Present Your Idea With a Compelling Business Plan

When presenting a business plan, start by tailoring your presentation to align with the VC firm's interests, emphasizing aspects of your business that resonate with their investment philosophy. Creating a visually appealing slide deck, complete with graphs, charts, and infographics, can help make complex data more accessible and keep your audience engaged.

Practice is key, so rehearse your presentation multiple times to refine your message and improve delivery. During the presentation, begin with an attention-grabbing story or statistic and then provide a structured walkthrough of your business plan.

Be prepared for a Q&A session afterward and handle questions confidently and honestly. Remember, if you don’t know an answer, it’s perfectly acceptable to acknowledge it and offer to provide the information later. Following the presentation, be proactive in providing any requested additional documents and maintain open lines of communication for future discussions.

Key components of a business plan:

• Executive Summary: A concise overview of your business, including the mission statement, product/service description, and basic information about your company’s leadership team, employees, and location.
• Company Description: Detailed information about what your company does and what problems it solves. Explain why your product or service is necessary.
• Market Analysis: Provide a robust market analysis that includes target market segmentation, market size, growth potential, and competitive analysis.
• Organizational Structure and Management Team: Outline your company’s structure and introduce your management team, highlighting their experience and roles in the success of the business.
• Products or Services: Detailed description of your products or services, including information about the product lifecycle, intellectual property status, and research and development activities if applicable.
• Marketing and Sales Strategy: Explain how you plan to attract and retain customers. This should include your sales strategy, marketing initiatives, and a description of the sales funnel.
• Financial Plan and Projections: This is critical for VC firms. Include historical financial data (if available) and prospective financial data, including forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets.
• Funding Request: Specify the amount of funding you are seeking and explain how it will be used. Also, discuss your plans for future funding.
• Exit Strategy: Describe the exit strategies you might consider, such as acquisition, IPO, or selling your stake in the business. This shows investors how they might reap a return on their investment.

Your business plan is a reflection of your vision and capability, so ensure it is clear, concise, and compelling. It should effectively communicate the potential of your business and be able to capture the interest and confidence of the VC firm.

Attend an Introductory Meeting to Discuss Project Details

The introductory meeting with a VC firm is a pivotal moment for entrepreneurs seeking funding. Its purpose extends beyond mere information exchange; it's an opportunity to make a compelling first impression, establish the credibility and potential of your business idea, and assess the compatibility between your company's goals and the VC’s investment philosophy.

During this meeting, several critical details will be discussed:

• Business Model: You will explain how your business intends to make money, focusing on its sustainability and profitability.
• Market Opportunity: Discuss the potential market size and how your company plans to capture and grow its market share.
• Competitive Landscape: Outline your key competitors and what sets your company apart from them.
• Financial Needs: Clearly state how much funding you need, what you will use it for, and your company’s valuation.
• Future Vision: Share your long-term vision for the company, including potential growth areas and exit strategies.

Examples reinforcing the importance of this meeting include:

• Tech Startup: A tech startup might use this meeting to showcase their innovative technology, provide evidence of scalability, and present market research supporting the demand for their solution. For instance, a SaaS company could illustrate their recurring revenue model and discuss their rapid user growth and engagement metrics.
• Biotech Firm: A biotech company might focus on their cutting-edge research, its impact on healthcare, and the path to regulatory approval and commercialization. They could discuss clinical trial results or partnerships with medical institutions.
• Retail Business: A retail entrepreneur might discuss their unique brand positioning, market penetration strategies, and plans for online-offline integration. They could highlight customer loyalty data and plans for expanding their digital footprint.

These examples underscore the significance of the introductory meeting as a platform to demonstrate the potential for growth, showcase the strength and expertise of the team, and articulate the viability of the business model. This meeting is not just an informational session; it's a strategic opportunity to begin building a relationship with potential investors.

Remember, the goal of this meeting is to leave a lasting, positive impression that paves the way for further discussions and potential investment. It's as much about selling your vision and team as it is about presenting your business plan.

Account for Business-Related Queries and Perform Due Diligence

The due diligence phase is a critical part of the VC investment process. It's a comprehensive evaluation undertaken by potential investors to assess the viability and potential of a startup before they commit to an investment. This phase allows investors to confirm the details presented by the startup and to understand the risks and opportunities associated with the investment.

During this phase, a wide range of information will be requested, covering various aspects of the startup's operations, finances, legal standings, and market position. Some key areas include:

• Financial Records: Detailed examination of financial statements, cash flow, revenue projections, burn rate, and historical financial performance. This also includes an analysis of the startup’s business model and profitability potential.
• Legal Documents: Review of legal documents such as incorporation papers, patents, intellectual property rights, legal disputes, and contractual obligations with suppliers, customers, or partners.
• Market Analysis: Assessment of the startup’s market, including size, growth potential, competitive landscape, and the company's market share and positioning.
• Product or Service Evaluation: Thorough evaluation of the product or service, including its development stage, technological viability, scalability, and competitive advantages.
• Customer References and Sales Data: Verification of customer references, sales records, and customer retention data to assess market acceptance and satisfaction.
• Management and Team Interviews: Interviews with key team members to evaluate their expertise, commitment, and ability to execute the business plan.
• Operational Processes: Review of internal processes, including supply chain management, production, and delivery mechanisms, to assess operational efficiency and scalability.

Examples of Due Diligence Activities

• Customer Reference Checks: Investors may directly contact a few customers to gauge their satisfaction and understand the value proposition of the startup’s product or service.
• Product Evaluations: Technical assessment of the product to understand its uniqueness, technological soundness, and compliance with industry standards.
• Business Strategy Review: In-depth discussions about the startup’s business strategy, including market entry strategies, growth plans, and risk management.
• Management Interviews: Personal interviews with the CEO, CFO, and other key executives to assess their leadership and operational capabilities.
• Market and Industry Analysis: Engaging market experts or conducting independent research to validate the startup’s market analysis and growth projections.

Due diligence is vital for both investors and startups. For investors, it mitigates risk by providing a clear picture of what they are investing in. It uncovers potential red flags that could affect the investment's return. For startups, this phase is an opportunity to demonstrate transparency, build trust, and potentially receive valuable insights from experienced investors.

Related resource: Valuing Startups: 10 Popular Methods

Review Term Sheets and Approve or Decline Funding

A term sheet is a critical document in the venture capital funding process. It's a non-binding agreement outlining the basic terms and conditions under which an investment will be made. A term sheet serves as a template to develop more detailed legal documents and is the basis for further negotiations. It typically includes information about the valuation of the company, the amount of investment, the percentage of ownership stake the investor will receive, the rights and responsibilities of each party, and other key terms such as voting rights, liquidation preferences, anti-dilution provisions, and exit strategy.

During the term sheet review, negotiations are a fundamental part. It's a give-and-take process where both the startup and the VC firm discuss and agree upon the terms of the investment. These negotiations are crucial as they determine how control, risks, and rewards are distributed between the startup founders and the investors. Areas of negotiation can include:

• Valuation: Determining the company's worth and consequently how much equity the investor gets for their investment.
• Ownership and Control: Deciding on the percentage of ownership the investor will have and how much control they will exert over company decisions.
• Protection Provisions: Negotiating terms that protect the investor’s interests, such as anti-dilution clauses, liquidation preferences, and board representation.
• Vesting Schedules: Discuss how the founder’s shares will vest over time to ensure their continued involvement in the business.

Negotiations require both parties to compromise and agree on terms that align the interests of both the investors and the founders.

Once the term sheet is accepted and signed by both parties, it leads to the drafting of detailed legal documents that formalize the investment. The actual disbursement of funds typically occurs after these legal documents are finalized and signed, a process that can take several weeks to months, depending on the complexity of the terms and the due diligence process. The funds are generally made available in a single tranche or in multiple tranches based on agreed-upon milestones or conditions.

It's important for startups to understand that a term sheet, while not legally binding in most respects, is a significant step in the funding process. It sets the stage for the formal legal agreements and the eventual receipt of funding. The clarity, fairness, and thoroughness of the term sheet can set the tone for a successful partnership between the startup and the venture capital firm.

Raise Capital and Keep Investors in the Know with Visible

As a founder, it's essential to remember that venture capital is not the only measure of success. The true value of your venture lies in the problem it solves, the impact it creates, and the legacy it builds. Venture capital can be a powerful catalyst, but your vision, tenacity, and ability to execute are what will ultimately define your journey and success.

Let Visible help you succeed- raise capital, update investors, and engage your team from a single platform. Try Visible free for 14 days.

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Connect to capital, how to write an executive summary for venture capital funding.

The executive summary – really just a compact version of your business plan – should concisely address the following:

• what your company does;
• why your product or service is unique and what opportunity you’re presenting;
• how your management team is well qualified to execute your business plan;
• how much capital you need and how it will be used.

Keep your summary brief – ideally, two pages or less. Think of it as everything you’d say to a prospective investor in a five-minute interview. There are some who advise that you write your executive summary last, to capture the crucial points you’ve written into your plan. Others advise that you write the executive summary first and use it as a road map to keep your business plan on track. Both approaches have merit. In either case, make sure your executive summary is professional, comprehensive, and concise.

iWidget, Inc. designs, manufactures and markets software solutions for the online gaming and desktop publishing industry. The company’s flagship product, iWidget Pro, is the leading software package for entrepreneurs seeking to start up a web business in the fast growing online gaming industry. iWidgetPro allows a user without any HTML skills to quickly set up an online gaming web site bundled with quick loading graphics and gaming technology. The company’s two accompanying software packages, iWidgetNext and iWidgetWorld, provide advanced design elements and technologies that allow users to customize their web sites. While the market is flooded with desktop publishing software, there is no other desktop publishing software company focused exclusively on the online gaming industry.

1. The Market

iWidget’s target market is the rapidly expanding online gaming industry and entrepreneurs seeking to set up gaming websites. Since its inception, the online gaming industry has experienced tremendous growth. Estimated at just over $1 billion in 2003, In-Stat/MDR expects the online gaming market to grow to nearly $4 billion by the end of 2008.

2. iWidget’s Competitive Advantage

As the only desktop publishing software maker focused exclusively on the online gaming industry with proprietary software that allows individuals to easily set up their own web businesses, iWidget is uniquely positioned to grow along with the industry and adapt to new industry developments quickly. Unlike other software makers’ products, iWidget’s products offer advanced and continuously updated technologies exclusive to online gaming. Software products offered by other software makers do not include these specialized technologies and do not offer the same ease of use or gaming graphics capabilities.

The expertise needed to design gaming industry-specific software is a significant barrier to market entry; iWidget’s management team includes desktop publishing industry pioneers with extensive knowledge and understanding of the online gaming industry and market.

3. Management Team

This is the second software venture for iWidget founders and co-owners J. Smith and R. Jones. Former classmates at M.I.T., the two teamed up to co-found iStudy, an online study system for college students that was acquired by BIG Textbooks Co. in 2002 for $8 million. Smith and Jones were among the pioneers of the desktop publishing software industry, and used their extensive knowledge and expertise to develop gaming-specific software that would allow individuals to set up lucrative online gaming web businesses. As the online gaming industry grows and develops, Smith and Jones are at the forefront of adaptive software that continues to evolve into a greater array of business options for online gaming industry entrepreneurs.

4. Investment

The capital sought in this proposal is iWidget’s third round of financing. Proceeds of the first round of $2.6 million in funding and second round of $3.5 million in funding have been used to expand the company’s highly knowledgeable team, develop new software products, and execute the company’s first software licensing agreement.

iWidget intends to raise an additional $3.5 million to develop additional software products, build out its marketing function, and successfully bring new products to the market.

5. Conclusion

First mover advantages have allowed iWidget to gain a dominant position in development and delivery of online gaming software. This early mover status, coupled with several years of desktop publishing management experience and technological expertise, will allow iWidget to continue to lead the field with cutting edge products in the fast growing online gaming industry.

What Is the Role of a Business Plan in Getting Venture Capital Funding?

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How to sell homemade candles to gift shops, how to raise funds for a small business.

• What Financial Projections Do Investors Look for in a Business Plan?
• How Should a Business Prepare for Next Year?

The bottom-line goal of any business plan created to seek funding is to demonstrate the prospects for profit. Not only will you need to show that your idea will be profitable, but you’ll also need to show how much profit and when you’ll achieve enough profit to make an investment worthwhile.

Any business plan, whether it’s intended to help you plan, launch and operate the business, or to help raise capital, should contain the same basic elements. The plan should include a description of the product or service and unique benefit it offers. It should have a marketplace overview that discusses the demonstrated need in the marketplace for what you intend to sell, a demographic description of the target customers, information about the competition and any recent or projected marketplace trends in sales, technology or other factors that will influence buyers. Include your expertise for starting or running a company, your marketing strategies, a budget, financial projections and any support documents.

Start-Up Costs

Any venture capitalist will want to see your business start-up costs if the funding is for a new business. These are the costs you will incur before you start selling. They include research and development costs; business set-up costs such as incorporation fees and licenses; deposits or payments for rent, office supplies, production materials and equipment; costs to purchase and outfit a building; insurance and professional services fees.

Operating Costs

Once your doors are open and you’re in business, you’ll have ongoing operating costs. Provide these for the first three years of the business and divide them into production and overhead expenses. If you are looking for expansion money, include your last three years’ worth of operating costs. This will help investors look at your ability to generate a profit on an ongoing basis, pay back your initial investment and create a return on the investment based on different sales and revenue scenarios.

Projections

Venture capitalists know they won’t have proof your business plan will work until after you start selling, but any research, focus group results, product testing, sales history and other support information that helps prove your assumptions will go a long way to attracting potential funders. Create a master budget, with breakout budgets for marketing, production, overhead, cash flow and operations. If you are looking for expansion money, include your last three years’ worth of budgets and sales figure. Include projections for paying of start-up costs, achieving operations break-even, return of the initial investment, when the investor can expect to start making a return and how much yearly profit or return the investor can expect.

Investment Request

Your business plan should accompany, but not contain, your proposal to potential investors. Your proposal should include the investment amount you are seeking and what you are willing to offer. Work with a business valuation consultant to create your offer -- many new entrepreneurs turn off potential investors by asking for funding based on an unrealistic business valuation and too low a percentage of the business in return for the investment. Some investors might ask for half or more of your company, even though their investment might be less than $100,000.

• Inc.: Start-up Guide: How to Raise Start-Up Capital
• Bloomberg Businessweek: Rules for Raising Capital

Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.

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Investing guide 101

Navigating the world of vc funds.

Learn the Fundamentals of Venture Capital Investments

1.Introduction to VC Funds

1.1. understanding venture capital: the meaning behind vc.

In its most general sense, Venture Capital (VC) is a form of investment in startups that are in the early stages of development. The venture capitalists provide financing in exchange for the startup’s equity. 

A startup is a newly-established company that needs financial resources to grow its operations. Besides being fairly young, such companies are perceived by venture capitalists as extremely promising in terms of the return on investment. In most cases, VC-supported businesses are yet to enter the phase of generating profit or even revenue. 

Equity, on the other hand, can be defined as a percentage of the ownership in a startup—and that is what motivates venture capitalists to invest, especially if the company is projected to become a huge success. 

In addition to financial support, venture capitalists sometimes provide technical or managerial resources to companies who came up with an innovative idea, but lack professional expertise. 

Venture capital’s popularity has increased in the second half of the twentieth century, after founders have realized they need an alternative to bank loans. From the perspective of the bank, early-stage companies always carry a significant portion of risk. There’s a huge possibility that the company will ultimately fail to turn its business plan to reality and become incapable of repaying the loan. 

From the startup founder’s perspective, it’s better to utilize earnings for further growth than having to use them for paying back loans with high interest rates. That’s where venture capital comes in. 

The sources of venture capital come from highly-experienced investors, investment bankers, and other financial institutions. Its main characteristics are high risk, huge return potential, and long-term engagement.

1.2. What is a Venture Capital Fund?

A venture capital fund represents a pooled investment, a sum of financial resources to be committed to early stage companies that are perceived as high-growth opportunities. It is a form of investment vehicle that seeks such companies and is formalized as a partnership.

VC funds are actively involved in startups’ development. In addition to providing guidance, they often take membership in the company’s board of directors and have a role in managing startup operations.

Since venture capital funds represent pooled investments, they raise capital from external investors. VC funds can have one or more fund managers, who send prospectus documents to potential outside investors. The prospectus is a formal document, defined by the Securities and Exchange Commission (SEC) in the United States, outlining the details about an investment and helping participants make informed decisions. 

One of the fundamental fund manager’s responsibilities is to review numerous business plans in order to identify potential high-growth startups. Based on this, the above-mentioned prospectus is created and handed over to prospective investors, who make or decline the commitment after analyzing it. 

The next stage is finalizing the individual amounts and making investments into a number of startups that together make up the VC fund’s portfolio. Thus, in contrast to investment syndicates that focus on a single company, venture capital funds invest in multiple startups to mitigate the risk. This follows the “don’t put all your eggs in one Basket” logic; if one startup fails, the other one may be very successful. 

How Venture Capital Fund Returns Work

In most cases, venture capital fund investors generate returns after the invested company exits (e.g. through an Initial Public Offering), merges or gets acquired by another business. 

This is when a “2 and 20” fee structure applies, which is an industry standard in venture capital. The VC fund charges 2% fee of assets under management (AUM), as well as 20% of generated profits, provided the profit has been made after the company had exited. The assets under management represent the overall market value of investments that the fund manages on behalf of investors. 

The expected return can vary, since VC funds finance a wide range of businesses from different industries. However, the funds usually target around 30% return rate per year over the lifetime of the investment.

The lifespan of a typical VC fund is around 10 years. Since venture capital is notorious for being risky, there’s another general rule: one third of the invested startups ultimately fail, another third returns only the invested capital, and the last third of startups becomes successful. 

1.3. What Is a Venture Capital Firm?

The broadest definition of a venture capital firm would be an organization that raises financial resources from different sources to invest that accumulated capital into startup companies. 

Venture capital firms obtain investing money from institutional investors such as pension funds, investment banks, academic institution endowments, investment funds owned by the government, insurance providers, hedge funds, and individual investors with a net worth above $1 million. 

As a legal entity, a venture capital firm can include several different venture capital funds. Institutional investors are intermediaries in VC firms. They do not invest directly in startups, but operate as Limited Partners.

Investment Focus Differentiation

VC firms operate according to an established thesis. This means that each firm specializes in investing in a particular type of startups: based on a specific sector (e.g. automotive industry, dot com), stage, or geographic location. For example, the hypothetical VC firm may specialize in young companies that expand access to financial tools and knowledge about managing personal finances. There are generalist VC firms as well, investing in startups from all sectors.

1.4. Key Parties in Venture Capital

In order to have a better understanding on how venture capital works, here’s a brief overview of the key players in venture capital: 

Venture Capitalists

Venture capitalists generate profit by creating a market for investors, startup founders, or investment banks. They are responsible for identifying and executing promising deals, as well as running the VC firm. 

Startup Founders or Entrepreneurs

These are not ordinary business people. As crucial players in the VC industry, startup founders are entrepreneurs with a strong vision that can both generate massive profits and create big changes or disruptions in a given industry. 

Besides helping startup founders with legal matters like business incorporation, patenting, or representing them in negotiations with venture capitalists, lawyers are hired by VCs themselves to manage legalities related to raising capital, setting up a venture capital fund, and other issues. 

Investors 

In the context of venture capital, investors are individuals or institutions willing to take risk with a goal to generate high returns. They can be general partners at the top of the venture capital fund’s chain of command, or limited partners that actually provide financial resources for the fund, ie. money to be invested. Learn more about general and limited partners in the following sections. 

Investment Banks

The role of investment banks is to help entrepreneurs find investors, successfully implement Initial Public Offering, merge or get acquired by other companies. Also, investment banks can be direct investors.

1.5. VC Fund Structure In a Nutshell

As already mentioned, the VC fund is a sum of capital that will be invested by the management company, or a venture capital firm. Here’s how VC funds are structured: 

Management Company (VC Firm)

The management company is an entity formed by the general partners. It can actually manage multiple venture capital funds, and is responsible for their operations. In exchange for providing investment opportunities and dealing with fund’s expenses, management companies collect fees from limited partners, and often engage in invested companies’ branding, operations, and growth strategies. 

General Partners (GPs)

General partners can either be individual high-net-worth investors that partner with a VC firm, or VC firms (management companies) themselves. Usually, they deploy their own financial resources into a fund. Their primary responsibility is analyzing potential deals and making final decisions on where the collected money should be invested.

Besides management fees, general partners receive interest for sourcing deals and managing the fund. It is usually around 20% of the profits generated by the venture capital investment. 

In short, the general partner’s role can be broken down into two things: 1) directing investments to innovative and promising companies and 2) raising capital for future ventures.

Limited Partners (LPs)

This is where the capital comes from. Just as VCs finance startups, limited partners finance VC funds. The collected amounts are often measured in billions; however, LPs invest only a small percentage of the money they manage into venture capital. They diversify investments through different asset classes, each carrying a different level of risk and potential return. 

Relationships between limited partners and venture capital funds are formalized through limited partnership agreements (LPA). Those are contracts outlining how the capital will be invested and profits distributed among each party in a VC fund. LPAs often include clauses that protect limited partners, prohibiting VC firms from investing in problematic industries, such as gambling for example.

Limited partners tend to be the following:

• Government-owned funds that invest national surplus capital
• Pension funds (private or corporate retirement funds)
• Educational endowment funds (investing donated money with a goal to generate returns that are at least above the inflation rate)
• Family offices
• Insurance companies
• Funds of funds (investing in venture capital funds using financial resources from other LPs)
• Wealthy individuals (investing their own money)

When it comes to venture capital fund hierarchy, it can be divided into top-, middle-, lower-level and support-type roles. 

Managing directors and general partners are the examples of the first category, since they are the ones who have the final word about investment decisions. Limited partners can also influence decision-making, depending on the arrangement. 

Examples of mid-level roles are principals and directors; they are not involved in the actual deployment of the investment, but can influence the final outcome of a deal. The next category in the hierarchy are analysts and associates, who can have a wide range of functions. Support-type roles can include marketing, business development, or human resources specialists.

2. Venture Capital Investment Process

2.1. key factors in investment evaluation.

Regardless of the venture capital firm’s focus on a specific industry or startup development phase, there are key company characteristics that influence VC investment choices. 

Team & Management

This is by far the most important factor that influences venture capitalists’ decisions. According to a research by Harvard Business Review, the majority of VCs surveyed agreed that the teams have contributed the most to the failure or success of companies in their portfolios. 95% of the survey respondents argued that startup founders had the biggest influence in deciding whether to establish a deal. 

Not only should management have relevant experience in the industry, but the entire team should consist of individuals who are capable of implementing what is envisioned in the business plan. 

On top of that, venture capitalists look for founders with a history of leading companies that have generated significant returns for investors. Flexibility is another factor; if the business idea is excellent but the team lacks talent, the management should express the willingness to outsource experts. 

Business Model & Market-Related Factors

These factors include the startup team’s ability to accurately formulate a strategy at each stage of its development, how the profits will be generated, the size of the market for a given product or service, and competitive advantage – the way the product or service solves the problem for users. 

The business plan should provide detailed market evaluation, and include both third-party analysis and feedback from potential users themselves. Ideally, potential customers should demonstrate a need for the product and willingness to purchase it.

The best scenario is having a solution that addresses pain points of consumers, a large market and a small number of competitors. The bigger the market, the more options there are for the VCs to exit their investment.

Return on investment

Venture capitalists use various metrics to assess the profitability of a particular investment. These can be Internal Rate of Return (IRR), Cash-on-Cash return and other calculation methods. In any case, investors will expect to profit from the deal.

That is why it’s crucial for VCs to receive accurate projections of a startup’s long-term goals, specifically regarding how funds will be allocated at each stage of business development. Startups that have successfully secured funding have typically provided a detailed financial forecast, along with their runway. The aim of a financial forecast is to estimate the amount of capital required to operate a thriving business.

The startup runway is composed of two critical factors: gross and net burn rate. The gross burn rate reflects the amount the company spends each month. It’s calculated by subtracting the available funds from the total funds at the beginning of the year, then dividing that result by twelve months. Conversely, the net burn rate represents the difference between the company’s earnings and expenditures. It’s determined by deducting the monthly earnings from the gross burn rate.

These projections enable VCs to evaluate whether the investment will generate a return on investment or not.

2.2. Stages of Venture Capital Funding

Depending on the development stage of a given business, there are various stages of venture capital funding, each with its unique objectives and expectations.

Pre-Seed Stage

During this stage, the capital is utilized to assist the startup in developing an idea for a forthcoming product or service. This is an informal financing stage, often involving financial resources provided by founders themselves. In many cases, startups enter business incubator programs to explore potential sources of funding. These programs offer a variety of services, such as mentoring or connecting with venture capitalists.

The funds raised during the seed stage are typically employed to facilitate the transition from the initial concept to an early product or prototype. A portion of the funds is typically allocated to Research & Development (R&D), which entails gathering information about the future market and how the product will meet the market’s needs.

Venture capitalists usually secure favorable terms from seed-stage startups, which is why they take on more risk with the expectation of achieving significantly higher returns on investment.

Early Stage Capital

At this stage, funding is utilized to support the company’s further product development efforts once a certain level of traction has been achieved. Additionally, the funds raised are allocated towards marketing activities and sales promotion, as well as strategic planning for expansion into new markets.

Series A and Series B funding are forms of early-stage financing.

Expansion Stage

During the expansion stage, companies aim to secure funding for the improvement of existing products as well as the development of new ones. This funding is also used to support the actual expansion into new markets, enhance relationships with consumers through major advertising campaigns, acquire other companies, and prepare for the future Initial Public Offering (IPO). Typically, expansion stage capital is raised through Series C funding.

Later-Stage or Exit

This phase involves securing final financing before the company embarks on an Initial Public Offering (IPO). The sources of funding in this stage are typically hedge funds or private equity firms.

2.3. Types of Venture Capital Funding

As elaborated in previous sections, venture capital investors receive a portion of company’s equity in return for providing the investment capital. They do it through the issuance of security instruments. There are different types of securities, but the most common ones are convertible debt, SAFE notes, preferred stock or equity, and highly structured preferred equity. 

However, from the perspective of startup founders, these instruments can be divided into two main categories: equity, and debt. The first one refers to giving up a portion of ownership in a company through stock issuance, and the latter, as the words suggests, refers to borrowing money – either by issuing bonds or taking out a loan. 

Have in mind that startups and investors may have different objectives. The founder’s main focus is the process of getting the company off the ground, while the investor’s biggest concern is return. That’s why both parties need to decide on a security instrument to be used and ensure favorable terms for everyone. 

Read on to learn more about each type of security instrument most commonly used by VCs. 

Convertible Debt

One of the most traditional methods of VC investing comes in the form of a convertible debt. This security instrument is designed to convert from debt to equity at some predetermined point – either in the next financing round or at the exit or liquidation stage, when an invested company enters an IPO.

The final amount that will ultimately convert to startup equity will consist of the principal amount of the convertible debt, plus interest that’s been accrued by the date of conversion. Thus, just as with traditional loans, convertible debt comes with an interest rate (usually around 2% or 3%), as well as a term of around two years. 

The price at which convertible debt will convert into company’s equity is determined by one of the factors below: 

Valuation cap. This is the maximum valuation at which the debt will convert. For example, a startup company may raise convertible debt at a $2 million valuation cap, and everything above that $2 million goes into valuation in the next funding round. 

Discount percentage. This is the discounted rate at which the convertible debt will convert; for example 90% of the original share price. 

There are benefits of convertible debt implementation for both investors and startups. VCs and founders do not need to agree on a startup valuation when defining the convertible debt terms, thus avoiding complex due diligence processes and fees. On the other hand, in case the startup exits at a lower amount than initially projected, the capital investor will be paid out before other parties engaged in investing. 

This type of security instrument was popularized by Y-combinator, a well-known startup accelerator company that facilitated launching of over 4,000 companies, including names such as Reddit, Coinbase, Airbnb, Quora, and Dropbox. SAFE is an abbreviation for Simple Agreement for Future Equity .

In a similar manner as convertible debt, SAFE notes convert to equity at a future financing round (e.g. Series A funding), and also include valuation cap or discount rate. However, there is no debt involved, and consequently there are no interest rates. 

The advantage of SAFE notes is that they are significantly less complex, require fewer terms to be negotiated, and are more favorable to founders than convertible debt. 

Preferred Equity

Preferred equity is most commonly used in larger venture capital investments, during the later-stages of startup development. Its main characteristic is a seniority over common shares when sale or liquidation of the company occurs. To put it simply, if a startup had raised $15 million and got sold for the same amount, all the money goes to investors (and preferred equity holders get paid before common shareholders). 

Preferred equity can also include anti-dilution clauses that provide additional benefits to investors. This allows them to sustain the equity ownership percentage even if new shares were issued.

Highly Structured Preferred Equity

This security instrument is typically used when investing in highly-developed, unicorn-type startups. It is a combination of convertible debt and preferred equity; for example, a company wants to raise $1 billion without prior business valuation write-down. Founder’s goal is not to go below that amount, and they create an instrument that comes with high interest rates and/or dividends. 

The benefit for investors is that they have priority when liquidation or exit occurs, plus higher returns in the form of dividends or interest.

2.4. Characteristics and Features of VC Investing

In this section, we’ll describe the most important aspects that both VCs and startup founders need to be aware of before engaging in the processes of investing and fundraising. 

Long Term Horizon

Venture capital investing involves a significant delay between the initial investment and ultimate returns. This implies high risk, which is why VC investments tend to feature high returns in order to compensate. 

Illiquidity

In contrast to publicly traded instruments such as stocks or bonds, VC investments do not imply short-term returns or payouts. Thus, venture capital mostly relies on the projected success of the initial public offering. 

Private Vs. Market Valuation Discrepancy

There is no precise method of determining a company’s actual value on the market, since VC investments are carried out by private funds. As a result, Initial Public Offering can produce significant speculation on both buyer and seller side. 

Also, startups usually develop an innovative product that will potentially disrupt the market. Because no one else has created a similar product or service before, no one can tell for sure what its actual market value is. 

Conflicts of Interest

We have already mentioned that founders and VCs have different concerns; the first one is concerned about the processes, and the latter’s main interest is ROI. 

Discrepancies in viewpoints may arise between limited partners and fund managers. Fund managers are sometimes compensated based on the amount of capital pooled by the venture capital fund, rather than the return on investment generated. As a result, fund managers may be more inclined to take on higher levels of risk than other VC investors are comfortable with.

3. Becoming a Venture Capitalist

3.1. starting a vc fund.

In the following section, we’ll go through the key components every aspiring fund manager should define in order to establish a successful venture capital fund. Each of these points should work in synergy, while the fund itself should have a clear point of differentiation when it comes to approach to investing. 

Established Track Record

Having an adequate background is one of the most important things for building quality relationships with limited partners. If you’ve already run an accelerator program, or collaborated with entrepreneurs, that is certainly a plus. You’ll also need to demonstrate a comprehensive understanding of the venture capital industry. 

Have you been a startup founder yourself? Do you already have previous investing experience? If answers to these questions are positive, this is to your advantage. Do your best to communicate your history of success, credibility, and competitiveness with limited partners, as it’s crucial for building mutual trust. 

VC Fund’s Mission and Investment Thesis

Ask yourself the following: why does the industry need your VC fund? What is your main motivation for establishing it? 

Each successful VC fund has a point of differentiation. Thus, try to clearly define the purpose and principles of your fund; it may be backing small businesses in a specific geographic area, supporting technology-driven startups that disrupt traditional finance, or providing capital to companies that implement AI in healthcare.

Being authentic and having a clearly defined mission and vision will help you attract both startup founders and investing partners. Based on all of this, as well as your previous track record, you’ll be able to develop an investment thesis. Ideally, the investment thesis of your VC fund will evolve at the same pace as the focus industry. 

Deal Sourcing 

For every fund manager, it is imperative to have a sufficient flow of relevant early-stage companies to invest in. There’s a variety of ways based on which fund managers generate the deal flow : 

• Having an established network of connections with research centers or educational institutions
• Running a startup accelerator or incubator program 
• Using tools like Motherbrain to identify promising startups
• Building the VC fund’s brand through marketing activities to motivate companies to reach out themselves

VC Fund’s Operating Model and Strategy

The first step toward building your fund’s strategy is analyzing other VC funds in the same industry, and adapt the model according to the most common practices. This will help you: 

• Build an approach to fund size and capital allocation
• Define the number of startups to invest in, and the portion of ownership in each
• Develop a fee/carry structure, co-investing roles and rights

You should also consider getting legal guidance on necessary tools and infrastructure to make sure your fund is compliant with regulatory requirements. 

Satisfying Limited Partners’ Interests and Ensuring Their Commitment 

It is essential to ensure that your limited partners can commit enough time to your venture fund, as it will be a long-term relationship. In addition to time commitment, offering financial incentives such as a hurdle rate, which is a minimum rate of return, can motivate VC investors to back the project. Typically, limited partners expect at least 1% of the VC fund size.

3.2 Starting a VC Firm

When considering starting a venture capital (VC) firm, the first thing that comes to mind is likely the cost of formation. However, estimating the formation costs of a VC firm is challenging since it depends on several factors, including its size, scope of activities, and location. These costs can range from $5,000 to as much as $1 million.

Although choosing a name for your VC firm may seem like a minor task, it should reflect the firm’s focus and mission. Make sure to come up with something memorable and check the availability of a web domain for it.

Business Plan

Apart from branding, there are several key steps involved in establishing a VC firm. The first of these is creating a business plan. Putting all essential details on paper will help everyone involved fully understand the VC firm’s strategy and roadmap. Additionally, the business plan will be used as a presentation tool when forming partnerships with other VC investors or institutions.

The business plan typically begins with a summary of the key details, followed by a VC firm profile overview that clarifies whether the company focuses on specific industries, startup development stages, or particular geographic locations.

It should also include customer and industry analyses. The former should address targeted startups and their specific characteristics, from operational structure to CEO personas. The latter should focus on the size of the industry in which startup companies operate, what factors affect that industry, and so on.

Next, a competitive analysis should be conducted. Are there similar VC firms operating in your scope of interest? What are the primary reasons and industry gaps that your VC firm will fill? Having good answers to these questions puts you on a solid path.

Finally, it is crucial to determine and thoroughly describe the processes behind daily operations. Define the needs of your staff, create a projected timeline of the VC firm’s progress, and outline what you plan to achieve in the short and long term. This will help you determine the financial requirements, including costs and expenses, as well as the way your VC firm will generate profits.

Legal Structure

If your VC firm is going to be located in the United States, you will need to choose an appropriate legal structure for the business entity and register with the Secretary of State. The most common legal structures are Limited Liability Company (LLC), Sole proprietorship, Partnership, C Corporation, and S Corporation. Before making a decision, consider the advantages and disadvantages of each business entity structure .

In contrast to venture funds that are usually formed as limited partnerships, VC firms are usually structured as LLCs.

Taxation and Banking

If your VC firm will have employees, you’ll need to register the company with the Internal Revenue Service (IRS) to obtain an Employer Identification Number (EIN). The EIN is required by banks to open your business banking account and serves for the IRS to track your tax payments.

Next, select your bank and establish a business account. The process of opening a bank account is straightforward, but requires you to submit documents such as your VC Firm’s Articles of Incorporation, which you obtain during the legal entity formation process.

Business Credit Card, Licenses, and Insurance

To separate your VC firm’s expenses from your personal expenses, you will need to obtain a business credit card, either from a bank or a credit card company.

Your VC firm will require various licenses to operate, such as the securities license. This license will enable your business entity to engage in actual investment activities. To obtain the license, prospective fund managers must pass the Financial Industry Regulatory Authority’s (FINRA) qualification exam , called Securities Industry Essentials (SIE).

Next, find an insurance agent who can recommend an insurance policy you will need to operate a venture capital firm. Different types of insurance are required depending on the state where your business operates, including general liability, workers’ compensation, commercial property, business interruption, or professional liability insurance.

Software & Equipment

Chances are you will need some software solutions to help you track and manage your investments. There are various tools specifically designed for VC and deal flow management.

Depending on your circumstances, you may need to purchase or lease office equipment necessary for running a VC company.

3.3. A Closer Look at VC Firm’s Associates and Partners

The venture capital industry is growing rapidly, leading to increasingly complex structures and hierarchies within VC firms. General partners are responsible for overseeing the firm’s operations, while hiring full- or part-time associates to take on various roles and responsibilities. 

With so many types of VC associates, it’s important to understand their different scopes of specialization, roles, and responsibilities. Here, we’ll explore five of the most common types of VC associates and what they bring to the table.

Operating Associates

Operating Associates are a category of VC associates that work closely with the startups within the portfolio. These associates often specialize in fields such as marketing and advertising, product development and design, or finance. 

Their main role is to help startups enter the market or make preparations for the next milestone in their roadmap. Operating associates are typically junior- to mid-level members of venture capital firms and are sometimes formally titled as analysts.

Board Associates

Board Associates, on the other hand, are mainly focused on improving the governance, management, and strategy of the startup company. They actually become members of the board in portfolio companies and are sometimes referred to as Non-Executive Directors. 

Ideally, board associates are experts in a given industry and have an established network of relevant connections. One of their main functions is to strengthen the relationship between the VC fund and the invested company. Additionally, they regularly perform due diligence and analyze portfolio companies’ business plans. These are typically senior members of the VC firm.

Fundraising Associates

A VC firm may establish a relationship with professionals focused on generating funds. This is especially true when VCs want to access a broader network of investors. In many cases, they start out as a contractor in a VC firm, and later become general partners after the fund has been closed successfully. 

Deal-Sourcing Associates 

Deal-Sourcing Associates play a critical role in introducing investment opportunities to the VC firm. They usually have a well-established network of connections in a particular industry and are often startup founders themselves, but they can also be angel investors . 

Instead of performing due diligence and analyzing deals, they focus on providing a regular deal flow. In return, they receive cash compensation in the form of a carry. Deal-sourcing associates can be senior or principal VC firm members, along with the general partner.

Sometimes, they formally serve as an Entrepreneur in Residence (EIR) – a highly experienced former CEO of a successful startup that contributes to the growth acceleration of the VC firm.

Biz-Dev Associates

Business development associates are responsible for increasing awareness about the VC firm in a targeted industry or community. A VC firm may specialize in a specific region, technology, or business vertical. Biz-Dev associates’ role is to present the VC firm at important events and introduce it to key individuals in the industry.

It’s important to note that many VC firm associates are engaged only part-time and do not rely on venture capital as their primary source of income. The different types of VC associates have varying responsibilities, but each plays a critical role in the success of the VC firm and its portfolio companies.

Having an MBA (Master of Business Administration) degree is a common trait among most venture capitalists. In addition to having relevant experience in private equity or investment banking, aspiring VCs are expected to have a solid education background. In the United States, Stanford and Harvard University are known for providing quality MBA programs.

3.4. How to Create an LP pitch deck

A Limited Partner (LP) Pitch Deck is a crucial tool used by venture capital firms to raise money from limited partners or institutional investors. This slide presentation outlines essential information about the VC firm, including its strengths, investment thesis, and plans for fundraising and future returns.

To create an effective LP pitch deck, it must be concise and clear. Today, potential limited partners only have a few minutes to review the slides, so it’s crucial to make every point count. In addition, the deck must include adequate legal disclaimers and align with LPs’ standards and expectations.

Let’s go through key points each LP deck has to cover: 

Introduction

The first slide should clearly define the VC firm’s mission and vision in a few sentences or bullet points. This should include the firm’s investment thesis, team’s background, and strategy. It’s also essential to present a unique value proposition for the firm that differentiates it from similar partnerships. 

This could be a market gap identified by the VC firm’s team or an untapped local area. It’s important to educate investors about market opportunities, but the information should be 

presented in a simple and straightforward manner.

It is preferable that the introductory slides showcase all members of the team and highlight their qualifications and credibility. Doing so will help to establish trust with potential investors.

Portfolio, Deal Sourcing and Investment Process

Use slides to showcase startup companies in the VC firm’s portfolio, the current fund size, the number of investments, the target startup ownerships, and the number of exits. It’s crucial to explain where the deal flow comes from and how it will continue in the future. 

This section should also describe the decision-making process behind selecting startups to invest in, preferably using graphic representations and diagrams. This will demonstrate to potential limited partners that your company has a sophisticated process of selection.

Track Record and Case Studies

Each quality pitch deck should include data that illustrates the performance of investments so far. It should highlight previous successes and recapitulate the years of experience in investing, results of coaching and advising you provided to invested startups, and preferably – financial return metrics. A metric commonly used for presenting investment returns is Multiple on Invested Capital (MOIC), sometimes called Equity Multiple – a total value of investment performance or shares in the fund relative to initial investment amount. 

Also, fund managers should present the ways in which they’ve contributed to startup growth and made a positive impact.

Fee Structure and Projected ROI

This section of the pitch deck is dedicated to informing potential limited partners of their commitments to the fund, and expected returns. 

It should provide details on the carry fee that is paid to general partners (a common percentage is 20%), as well as management fees for administrative services (usually around 2%). 

To show that investments are to be worthwhile, the projected Return of Investment (ROI) should be included too. Limited partners usually expect a three to five times greater return on the initial invested capital.

4. Pros & Cons of Venture Capital

4.1. benefits of entering the vc industry.

Acquiring insights on what it takes to build a successful business. People that work in the VC industry are able to witness the complete cycle of startup development; from initial idea, to fundraising, generating first revenues, all the way to becoming profitable. By performing due diligence, venture capitalists get to analyze business models, founders and customers, products and markets, supply chains, and so on. This allows them to understand the fundamentals of successful businesses.

Venture capital is hard to disrupt. Compared to other industries, venture capital is fundamentally tied to human cooperation and relationships. 

High revenues and excellent work-life balance. In contrast to other professions, venture capitalists earn way more. Also, since the process of investing is a long-term pursuit, there will be few occasions where VC professionals need to complete the tasks urgently. 

Developing innovation skills. Venture capitalists are known to support startups that are developing groundbreaking products, services, or technologies, which allows them to observe market trends and customer behavior changes before they become widely adopted. By focusing on building solutions that don’t exist yet, startups have the potential to generate higher profits than those that simply improve upon existing products. Furthermore, being involved with innovative companies fosters a forward-thinking mindset that can anticipate what will be popular in the next 5 to 10 years.

Further career development and building professional networks. Experienced venture capitalists have analyzed countless startup companies and gained valuable insights into what it takes for a startup to achieve unicorn status. If they decide to transition to a role within a startup company, they can leverage this knowledge to make critical contributions to the company’s success. Additionally, VCs frequently meet with the most innovative individuals in the world – startup founders. This provides an opportunity to build a network of highly skilled professionals across a range of industries.

4.2. Drawbacks of VC Industry

Investing in venture capital comes with several risks that investors should be aware of. Here are some of the most significant ones:

Possibility of losing the entire investment: An investment in a startup can become illiquid, meaning that a liquidity event such as a sale or Initial Public Offering (IPO) may not be possible due to securities legislation, the lack of an active market for the company’s shares, or the company’s failure to generate sufficient revenue for an exit strategy. With a long-term investment horizon, investors may be unable to sell their securities until an IPO occurs or they find a buyer, adding to the risk. It is therefore essential to consult with a financial advisor regarding financial goals and investment portfolios.

Weak chances of advancing to the senior position. The top management in VC firms usually consists of one or two individuals. Since it takes years, or even decades to make profits or earn a carry, there’s a huge possibility of not being able to advance in the hierarchy for a long time – especially without a proven track record, owned by VC Firm leaders. Have in mind that many VC firms have no interest in introducing new general partners; they’d rather split the return among fewer parties. 

Majority of gains go to minority of team members. Working in a VC firm can make you spend years earning money for others. Even if you’re paid fairly high, the management company can get 99% of all the returns, regardless of the fact that you have sourced a startup that became extremely successful.

The VC industry is fiercely competitive. Although it is not difficult to identify promising startups, especially with previous experience, the real challenge is to win and source the best deals. Only a few venture capitalists can find and source more than one unicorn in a couple of years. It takes a significant effort to convince founders to choose your VC over other, more established firms.

Unforeseeable difficulties are common in the VC industry . There are three types of potential barriers that can hinder long-term returns. The first type is related to economic factors, such as a recession. The second type is related to legislation and government regulations, particularly if a VC firm deals with neobanks or crypto-related companies. The third potential risk is related to intellectual property and possible patent infringements.

Investors need to be accredited. Investors who wish to engage in private offerings, including VC investments, must be accredited according to the Securities and Exchange Commission (SEC). This requirement is intended to protect investors by limiting such offerings to individuals who can absorb potential losses and manage the potential illiquidity of VC assets. To meet the criteria for accredited investor status, an individual must have earned more than $200,000 in each of the last two years, or have a net worth of over $1 million.

5. Legal, Regulatory, and Taxation Implications

5.1. legal aspects of venture capital.

Venture capital funds (and private funds in general) are regulated by a number of federal laws that define how VCs raise financial resources, set up a legal entity, and provide services to other investors (limited partners). Venture capital is under the jurisdiction of the Securities and Exchange Commission (SEC).

The following criteria need to be met in order to qualify as a VC fund exempt from SEC registration requirement, according to The Advisers Act of 1940 , and The Investment Company Act of 1940 :

• No more than 20% of fund’s capital is invested in non-qualifying assets, which include debt, secondaries, fund-of-fund investments, Initial Public Offerings, or digital assets.
• A maximum of 15% of the fund’s size should be based on borrowing; all leveraged debts need to be repaid within 120 days
• The fund represents to existing and potential investors that it follows a venture capital strategy – which includes aspects such as stage of investment and industry
• Limited partners are able to cash out of the fund only in “extraordinary circumstances”.
• The fund must not be publicly offered and needs to have less than 100 owners, all of which are accredited investors
• In case owners are not accredited, the fund must not manage more than $10 million and needs to have fewer than 250 owners
• It can be any fund not publicly offered, but all investors need to be qualified purchasers
• The fund can have a maximum of 1,999 investors

Provided that funds meet above criteria, they are exempt from the requirement to register with the SEC, in contrast to mutual funds or closed-end funds. The latter are allowed to collect investment capital from the general public, but are subject to extensive compliance requirements. 

Since the majority of VC funds are not required to register with the SEC, more regulatory 

requirements are imposed on VC fund managers. Different regulations apply based on the size of fund manager’s assets under management: 

• If size of assets under management does not exceed $25 million, the fund manager is qualified as a small adviser and is regulated by the state regulator
• If size of assets under management is between $25M and $100M, the fund manager is qualified as a mid-size adviser and is regulated by the state regulator or SEC
• If size of assets under management exceeds $100 million, the fund manager is qualified as a large adviser and is regulated by the SEC

Depending on circumstances, fund managers can also qualify as exempt reporting advisers and avoid regulatory requirements: 

• In case fund manager strictly advises private funds with total assets under management of less than $150 million
• In case fund manager strictly advises venture capital funds

However, the exempt reporting advisers are still required to complete the Form ADV , containing information about the fund manager and business operations details. Both categories, registered and reporting advisers, can be subject to examination by both the SEC and state-level regulators. 

When it comes to SEC-registered fund managers, they are obligated to file Form PF in case their assets under management exceed $150 million. This reporting document provides all the information about the size of the fund, liquidity, and number of investors. 

Fundraising by venture capital funds is regulated by Regulation D that outlines how the private capital is raised – specifically through Rule 506(b) and Rule 506(c). According to this, VC funds are able to raise unlimited capital, provided that investors are accredited. On the other hand, Regul ation S defines how companies can sell their shares to investors outside the United States. 

5.2. Taxation Aspects of Venture Capital

VC funds are in most cases structured as limited partnerships. As such, these legal entities fall into the category of “pass-through” entities, which means the business itself is not liable for income taxes, but the liability is passed over to each business owner – in this case, general partners (GP), and limited partners (LP). 

The taxation amount depends on multiple factors, such as the timespan during which the funds hold an investment prior to liquidating it, the gross income, and the type of income reported. 

What Gets Taxed in a VC Fund?

Realized Gains. Both general and limited partners are required to pay taxes on their share of VC Fund’s income. If the VC fund was holding assets for less than three years, the returns associated will be treated as a short term capital gain, with a maximum tax rate of 37%. In case the fund was holding the assets for more than three years, the associated returns on the investment are treated as long-term gains and will be subject to a maximum tax rate of 20%. The exact tax rate depends on the adjusted gross income of each partner. 

Management Fees. The net income generated from general partner’s management fees is subject to standard income tax rates in the United States. 

Carried interest / Carry. A fixed percentage of VC funds profits (known as “Carry”), paid to general partners as a compensation for providing ROI to limited partners, is considered by law as a return on investment and taxed as a capital gain. 

The Internal Revenue Service (IRS) requires both general and limited partners to report their profits or losses using a Schedule K-1 IRS form . In case the invested company closes down, implying that there is no return on the investment, the general partners are able to write off that investment.

6. Venture Capital and Web3 

6.1. how vc financing works in crypto and web3 industries.

Venture capital financing in the Web 3.0 industry is rather similar to traditional VC funding, except for one detail that makes a huge difference – VCs are investing in blockchain and cryptocurrency projects. Bearing in mind the regulatory guidelines that are still developing, as well as the need for longer investment lock-up periods, venture capital in the Web3 space implies even more risk.

Another important aspect is the fact that Web3 companies rely on new, more “democratic” ways of raising capital, such as Initial Coin Offerings (ICO), and more recently Initial DEX offerings (IDO). Additionally, the emergence of Decentralized Autonomous Organizations (DAO) allows startup founders to stop relying on VCs and traditional fundraising models, and obtain capital from the investment vehicle run by the community. 

These Web3-powered models of raising capital were somewhat controversial in the past and had their own setbacks, but the development of more sophisticated frameworks and tools made possible for the concepts not to be abandoned.

Nevertheless, an increasing number of VC funds and institutional investors are showing interest in web3, crypto, and blockchain-related businesses. This surge in interest is largely driven by the high potential for growth and disruption, making them attractive opportunities for investors looking to diversify their portfolios and capitalize on the potential for high returns.

6.2. How Web3 Can Disrupt Venture Capital 

Venture capital firms do not solely provide financing to startups; they also offer an array of additional services that are essential for their success. These services include legal support, consulting, marketing, recruiting, and more.

The web3 startup ecosystem operates on unique community-driven mechanisms, lacking a central authority to make decisions. These mechanisms rely on community voting recorded on the blockchain, resulting in a paradigm shift for traditional venture capital firms. To remain relevant in the web3 era, venture capitalists must engage more actively with these communities to partake in investment opportunities.

In essence, the web3 revolution is challenging venture capitalists to rethink their strategies and adapt to new market dynamics to remain competitive. Only those who embrace these changes and leverage innovative approaches will succeed in this rapidly evolving landscape.

The traditional venture capital model must demonstrate its value proposition for emerging web3 projects and present a compelling case for why it is superior to community-driven, decentralized fundraising models such as investment DAOs. To adapt, VC firms are already exploring alternative models, such as transforming into DAOs themselves. Another example of web3 disruption is the Unique.vc platform, enabling investors to create or join VC funds and leverage blockchain technology to manage them.

Related topics

What is Blockchain Governance? Types & Principles

In the context of blockchain, governance refers to the decision-making procedures, rules, and structures that dictate the functioning of an.

Angel Investing

What is Deal Flow? How it Works and Best Practices

In the dynamic world of startup investing, deal flow has emerged as a pivotal concept for investors in innovative early-stage.

How to Invest in the Web3 Ecosystem: Unleashing the Future

Web3 empowers users to collaboratively build digital ecosystems, earn crypto tokens, and thrive in a decentralized online world..

Investing in venture capital funds, vehicles, or companies is inherently risky and illiquid. It involves a high degree of risk and is suitable only for sophisticated and qualified investors. The performance of past deals or a lead investors’ track record is not a guarantee of future returns.

The information contained herein is provided for informational and discussion purposes only and is not intended to be a recommendation for any investment, service, product, or legal, tax, or financial advice of any kind, and shall not constitute or imply an offer of any kind.

All examples of past investments featured are purely for illustrative purposes only and do not reflect the entirety of investments made on the Unique.vc platform. There is no guarantee that any fund, syndicate, or company will achieve the same results.

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Venture Capital Financial Modeling

Blog > venture capital financial modeling, table of content, introduction, i. understanding venture capital, ii. the importance of financial modeling, iii. building a venture capital financial model, iv. income statement modeling, v. balance sheet modeling, vi. cash flow statement modeling, vii. scenario analysis, viii. sensitivity analysis, ix. presenting your model, x. the importance of professional help, our other categories.

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Reading Time : 14 Min

Raising capital.

Venture capital (VC) can be a game-changer for startups, providing the much-needed capital to fuel growth and innovation. However, attracting VC investments requires more than a compelling pitch; it demands a rock-solid venture capital financial model . In this comprehensive guide, we’ll delve into the world of VC financial modeling, helping startups like yours prepare for success.

Venture capitalists (VCs) are investors who provide funding to startups and early-stage companies. They seek high returns and are willing to take calculated risks. To secure VC funding, startups must align with VCs’ investment criteria. These criteria typically include:

• Team: VCs invest in people as much as ideas. A strong, capable team is a top priority.

Example: Let’s take the hypothetical startup “TechGenius,” developing cutting-edge AI solutions. TechGenius assembled a diverse team of data scientists, engineers, and business development experts.

• Market: VCs look for startups targeting large, growing markets.

Example: Suppose TechGenius identifies a market opportunity in healthcare AI. The global healthcare AI market is projected to reach $45 billion by 2026.

• Scalability: Successful startups must have the potential to scale rapidly.

Example: TechGenius’s AI solutions can be applied to various industries, from healthcare to finance, demonstrating scalability.

Stellar Business Tip: When seeking VC funding, ensure your team is not only competent but also well-balanced, covering key roles such as technology, marketing, and finance.

VCs rely heavily on financial models when evaluating investment opportunities. These models help VCs understand a startup’s growth potential, profitability, and risk. Here’s why financial modeling is crucial:

• Projection of Financial Performance: Models project a startup’s financial performance over time, usually three to five years.

Example: TechGenius’s financial model forecasts revenue growth of 300% over the next three years, driven by its AI solutions’ market demand.

• Risk Assessment: VCs assess the risks associated with the investment by scrutinizing the model’s assumptions and outputs.

Example: TechGenius acknowledges market competition as a risk and provides a risk mitigation strategy in its model.

• Alignment with Strategy: Models guide strategic decisions by providing insights into cash flow, burn rate, and financing needs.

Example: TechGenius uses its financial model to plan R&D investment and marketing campaigns in alignment with its revenue targets.

Stellar Business Tip: Ensure your financial model aligns with your long-term strategic goals. A model that reflects your business’s mission and vision will resonate better with investors.

A VC financial model is a comprehensive representation of a startup’s future financial health. Here’s a step-by-step guide to building one:

• Gather Historical Data: Start with your startup’s historical financial data, including revenue, expenses, and previous investments.

Example: TechGenius begins by documenting its past two years of financial performance, including expenses related to research, development, and marketing.

• Market Research: Conduct thorough market research to support your growth projections. Understand your target market’s size, trends, and competition.

Example: TechGenius performs a market analysis, identifying key competitors, market size, and growth potential. This research informs its revenue projections.

Stellar Business Tip: Use multiple sources for market research to ensure your data is accurate and up-to-date. Cross-referencing information can reveal hidden opportunities.

• Choose a Modeling Tool: Select a suitable financial modeling tool. Many startups use Excel due to its flexibility, while others opt for specialized software.

Example: TechGenius chooses Excel due to its widespread use and availability of templates suited to financial modeling.

Stellar Business Tip: Invest time in learning your chosen modeling tool thoroughly. Proficiency can save time and reduce errors during modeling.

The income statement is a crucial part of your VC financial model. It forecasts your startup’s revenue and expenses over a specific period. Key components include:

• Revenue Projections: Estimate revenue streams based on market research, pricing strategy, and sales forecasts.

Example: TechGenius predicts that its AI solutions will generate revenue through subscription-based licensing to healthcare providers.

• Operating Expenses: Detail all operating expenses, such as salaries, marketing, and administrative costs.

Example: TechGenius’s operating expenses include salaries for its data science team, digital advertising costs, and office rent.

• Gross Margin: Calculate the gross margin, a key indicator of profitability.

Example: TechGenius closely tracks its cost of goods sold (COGS) to calculate its gross margin accurately.

Stellar Business Tip: Clearly label and document your assumptions in the income statement. Transparency can build trust with investors.

The balance sheet provides a snapshot of your startup’s financial health at a given point. It includes:

• Assets: List current and non-current assets, including cash, inventory, and intellectual property.

Example: TechGenius lists its AI software as an intangible asset, assigned a value based on development costs and market potential.

• Liabilities: Detail short-term and long-term liabilities, such as loans and accounts payable.

Example: TechGenius includes a short-term loan it secured to fund a marketing campaign in its liabilities.

• Equity: Explain the startup’s equity structure, showing how funding rounds impact equity.

Example: TechGenius illustrates how equity was allocated during its seed funding round, demonstrating the investor’s equity stake.

Stellar Business Tip: Keep your balance sheet updated regularly to track changes in your financial position accurately.

The cash flow statement tracks cash inflows and outflows over a specific period, ensuring your startup remains solvent. Its key sections include:

• Operating Activities: To calculate net cash flow from products, operating activities should account for inventory purchases and sales revenue.

Example: If you’ve acquired new machinery, include its cost and any revenue it generates in this section.

• Investing Activities: Covers cash flows related to investments in assets or securities.

Example: When TechGenius acquires new servers to support its AI software, it’s considered an investing activity.

• Financing Activities: Records cash flows from fundraising, debt, or equity transactions.

Example: If TechGenius secures a venture capital investment, it’s classified as a financing activity. Include the amount and any terms associated with it.

Stellar Business Tip: A cash flow shortage can spell trouble for startups. Use your cash flow statement to identify potential shortfalls and plan accordingly.

VCs appreciate startups that anticipate challenges and have contingency plans. Conduct scenario analysis by adjusting key assumptions to see how they affect your financial projections.

Example: Create scenarios for a best-case, worst-case, and base-case scenario. How does a delay in product launch impact your financials? What if your customer acquisition costs are higher than expected?

Stellar Business Tip: Be prepared to discuss these scenarios with potential investors. Demonstrating your flexibility and adaptability can instill confidence.

Sensitivity analysis takes scenario analysis further by quantifying the impact of changing a single variable while keeping others constant.

Example: If your revenue is sensitive to changes in pricing, adjust your pricing assumptions and observe the resulting impact on cash flow.

Stellar Business Tip: Understand which variables have the most significant impact on your financial model. Focus your sensitivity analysis on these key drivers.

Once your VC financial model is complete, presenting it effectively to investors is crucial. Here’s how to do it:

• Executive Summary: Begin with a concise executive summary that highlights the key points of your model.

Stellar Business Tip: Use bullet points to make your summary easy to skim. VCs often receive numerous pitch decks; a clear summary can pique their interest.

• Detailed Presentation: During presentations or meetings, walk investors through your model. Explain your assumptions, highlight important metrics, and be prepared to answer questions.

Stellar Business Tip: Practice your presentation thoroughly. Confidence and clarity can leave a lasting impression.

Creating a robust VC financial model can be challenging, especially for first-time entrepreneurs. Consider seeking professional help from experts like Stellar Business Plans .

Stellar Business Tip: An experienced consultant can provide valuable insights, help you avoid common pitfalls, and fine-tune your financial model for success.

Mastering venture capital financial modeling is essential for startups looking to secure VC funding. A well-structured financial model not only attracts investors but also guides strategic decisions. By following the steps outlined in this guide, you’ll be well-prepared to create a compelling financial model that opens doors to growth and success.

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How to Present a Business Plan to Venture Capitalists

Last Updated: March 23, 2023

This article was co-authored by Pete Canalichio . Pete Canalichio is a Brand Strategist, Licensing Expert, and Founder of BrandAlive. With nearly 30 years of experience at companies such as Coca-Cola and Newell Brands, he specializes in helping brands find the most authentic parts of their story to build a brand strategy. Pete holds an MBA from the University of North Carolina at Chapel Hill and a BS in Physics from the United States Naval Academy. In 2006, he won an MVP Award from Newell Brands for his contributions to their Global Licensing department. He’s also penned the award-winning book, Expand, Grow, Thrive. This article has been viewed 48,790 times.

A venture capitalist (VC) is a person or organization that invests in another’s business or business idea. If you have contacted a VC about investing in your business and have received an invitation for an interview, you will need to prepare your business plan to present during the interview. To present a business plan to a venture capitalist, follow the steps below.

• The company's purpose. Make it short and to the point. For example, a company who manufactures educational products for children may state its purpose as, "to provide children with high quality, inexpensive, educational materials".
• Your target audience. Your target audience is the group of people to whom you will market your product or service. For example, a manufacturer of children's educational products may serve children all across the United States or a tax preparation company may serve tax payers in a certain county or state.
• A description of your company’s product(s) and/or service(s). Describe what your company's product or service is, what it does or how it works, and why someone should want to buy or use it. For example, a tax preparation company may provide faster, more accurate, and less expensive income tax preparation services to tax payers in the area than any other company.
• An explanation of what the company wishes to accomplish. For example, an animal shelter may wish to "ensure that all homeless and abused animals find caring, loving homes" or a tax preparation company may wish to "make fast, accurate tax preparation available to all taxpayers".

• Your company contact information. This includes your company name, logo, tagline, if you have one, the businesses' physical address and your name and personal telephone number.
• An introduction to your product. Provide a brief description of the product or service your company offers. You might want to use photos or illustrations of the product in appropriate places, or include a video demonstration of the product.
• Your company’s financial information. A summary of your most recent profit and loss statement, your current budget, and a financial projection for the following year should be included in the financials. Consider using bar graphs and pie charts to illustrate the most important points.
• A marketing plan. The plan should be a summary of your marketing strategy from your business plan, and should include just the most important points. You may wish to illustrate your points with charts or graphs to make the plan easier to read and understand.
• A description of the competition. Identify and name your competition. Describe the competition’s product and marketing strengths and weaknesses. You may also want to briefly describe why your product is better than your competitor’s product and how you will convince potential customers of that.
• A summary of why the VC should invest in your company. Create a bulleted list of your company’s main attractions or write a paragraph selling your product and your company. However you format it, this is your last chance to 'pitch' your product to the VC.

• Experience. A team member’s experience is important to a VC. After all, new companies fail everyday due to a simple lack of experience. Your team’s previous experience and successful business ventures will help convince a VC that your business will succeed and is worth investing in.
• Education. A team member's educational background is important to a VC considering investing in your company. Well-educated members can give your company an advantage over those company's without educated team members. Describe each member’s education and any degrees he or she possess.
• Personal characteristics. Your team member's character and personality traits are an important factor in whether your business will be successful or not. Hard working, intelligent, creative, reliable, trustworthy team members are more apt to create and run a successful business than lazy, unreliable, and dishonest team members. Talk about your team members’ strengths and how they will contribute to the success of your business.

Expert Q&A

• Practice your presentation. Enlist the help of friends and family to act as an audience so that you may practice your speech and slide show presentation. Thanks Helpful 3 Not Helpful 0
• Allow plenty of time for a question and answer session after your presentation. Thanks Helpful 4 Not Helpful 1
• Keep it short. Twenty minutes is the maximum length for a good VC presentation, and many experts recommend that you keep it to no more than 10 minutes. Thanks Helpful 0 Not Helpful 0

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Navigating Business Loans: When and How to Secure Funding for Your Startup

Published on Aug. 4, 2024

By: Steve Strauss

• The time to think about how you will fund your new startup is as soon as the entrepreneurial bug hits you.
• SBA loans come with a government guarantee, making them easier to secure.
• Microloans or relying on your own resources can also be viable options.

There are two things that we can say are for sure true about launching a startup .

First, it can and should be one of the true joys of life. There are few times in life when the stars align just so that you have the time, inspiration, support, mojo, and vision to launch a new business. It truly is an exciting and fun moment.

Let's dig into that last issue, funding, because it can be the most challenging of all. The good news is that it does not have to be. There are two questions to be answered, and once you answer them, the funding piece of your puzzle should fall right into place.

When to secure funding

There is an old Chinese proverb that goes, "The best time to plant a tree is 20 years ago. The second best time is now."

Why a Business Credit Card Could Transform Your Small Business

These business credit cards that offer a convenient and efficient way to separate personal and business expenses, simplifying accounting and tax reporting.

Additionally, business cards can provide valuable perks such as rewards points, cashback, and expense tracking tools, enhancing financial management and the potential to help save money in the long run.

Waiting until you are on the verge of quitting your old job and starting is way too late, for a couple primary reasons:

• It typically takes a while to line up all of the funding you need, and it also typically requires tapping into several different sources. Given that, funding the venture should be at the very top of your list of things to do as you begin the journey.
• Second, you will need to spend money even before you ever have that "Grand Opening" party. You will need funds for legal help, initial marketing, website and social build-out, and, oh, about 50 other things. So you need to secure funding as soon as possible.

According to the Small Business Administration, fully 75% of new startups rely on a combination of business loans, credit cards, and lines of credit for their initial rounds of funding.

How to secure start-up funding

In my latest book, Your Small Business Boom , I have two full chapters on ways to fund a business. What is great is that there is no shortage of ways to fund a startup these days. Here are your best bets.

Small Business Administration (SBA) loans

What if I told you that there is a multi-billion dollar agency within the federal government whose sole purpose is to help your new business succeed? Well, there is -- and it's called the SBA. The SBA has a wide variety of business loans for a wide variety of businesses.

But note: The SBA does not make the loans, it simply guarantees them. But even that is good news for you as, with an SBA guarantee, these loans are typically easier to get than a normal bank loan. Search for a local bank that offers SBA lending and off you go.

If you need funding under $50,000, a microloan may be right for you. The SBA makes microloans (up to $50K), and local nonprofits do as well, for smaller amounts. Again, usually these are easier to get than a typical bank loan.

The reason for this is two-fold. First, lower amounts are generally easier loans to fund, and second, microloans are often funded by nonprofits whose mission is to help small businesses get funding, often by relaxing loan underwriting requirements.

Bank loans and lines of credit

Banks want to lend you money. That is their business. Your job then is to make their job easy. You do so by having collateral, a good credit rating, a solid business plan, and a great team (if that is what your new business will require).

The real trick is to show the lender generally, and the banker you are working with in particular, that you have a solid plan for your startup. Aim to show that there is a need and a market for what you plan on selling, and that you have the expertise and ability to fill that market need.

Your own resources

Most new entrepreneurs cobble together a patchwork of funding, and that often includes their own capital. It could be money you have saved, or proceeds from some sale, or a loan from Uncle Joe, or even credit cards .

Other lenders will want to see that you have some skin in the game. Having your own money on the line shows the lender that it isn't the only one at risk -- it shows that you are so committed and so passionate, that you are willing to risk your own capital too to see your business succeed.

The bottom line is that there are more options than ever for funding a new business. Get out there, get creative, and go for it. Your empire awaits!

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Steve Strauss is the president of a boutique content company, The Strauss Group, and is a bestselling small business author and columnist. He can be reached at www.MrAllBiz.com, or at [email protected] .

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InnovationRx: Healthcare And Biotech Startups Dominated Venture Capital In July

Plus: This billionaire has a $400 million plan to develop an HIV vaccine.

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InnovationRx is your weekly digest of healthcare news. To get it in your inbox, subscribe here .

V enture capital funding reached over $23 billion in the month of July, according to Crunchbase , up more than 20% year over year. The leading sector for investment? Healthcare and biotech companies, which raised a total of $6 billion in investment capital–outpacing even AI companies.

The report also notes several notable billion-dollar exits this year, including Nerio Therapeutics acquisition by Boehringer Ingelheim and Otsuka’s acquisition of Jnana Therapeutics.

This Secretive Billionaire Thinks He Can Cure HIV. Here’s Why.

Michael Prince for Forbes

Terry Ragon is a billionaire thanks to founding software company InterSystems, which is used by healthcare systems worldwide. He and his wife have donated $400 million of their wealth in pursuit of one of the holy grails of biotechnology: a vaccine for HIV. Here’s why he thinks the approach he’s backing has a chance to succeed when so many others have failed.

Read more here.

Pipeline & Deal Updates

Endometrial Cancer: The FDA announced that it’s expanded its approval of GSK’s cancer drug Jemperli in combination with chemotherapy to include endometrial cancer patients with mismatch repair proficient/microsatellite stable tumors, which represents about 70-75% of total patients diagnosed with this form of cancer.

Pharmacy: Walgreens has sold more shares of drug distributor Cencora for proceeds of about $1.1 billion, which will be used “primarily for debt paydown and general corporate purposes.”

Neurology: Roche and Genentech have exercised their option for a Neuromap from Recursion Pharmaceuticals, triggering a $30 million milestone payment for the product, which is designed to uncover neurological insights using cell data and Recursion’s AI algorithms.

Dialysis: The FDA issued a 510(k) clearance for Diality’s Moda-flx hemodialysis system for kidney failure patients.

Brain cancer : The FDA approved Servier’s new drug Vorianigo as a treatment for certain brain cancer patients with grade 2 astrocytoma or oligodendroglioma with particular mutations. Agios Pharmaceuticals will receive a $1.1 billion milestone payment as a result of the approval under its collaboration agreement with Servier.

Updated COVID Vaccines Are Coming

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Drug manufacturers have created updated monovalent COVID-19 vaccines to protect against currently circulating variants, and the shots—which have shown to be more effective than the now-available vaccines—are expected to be available as soon as this month.

Other Healthcare News

Dopamine May Improve Memory Of Alzheimer’s Patients, Study Suggests

Ozempic Maker Novo Nordisk Sinks On Disappointing Earnings

Another Profitable Quarter For Oscar Health As Obamacare Business Grows

Wegovy And Zepbound Doses Available Again After Months Of Shortages, FDA Says—But Supplies Are Still Limited

CVS Health CEO Takes Charge At Aetna After Insurer’s Latest Miss

Cancer Rates Increased Among Millennials And Gen X, Study Suggests—Here’s Why

Across Forbes

What else we are reading.

The race to build better CRISPR delivery vehicles is heating up (Stat)

Second brain implant by Elon Musk’s Neuralink: will it fare better than the first? (Nature)

American Science Slips into Dangerous Decline, Experts Warn, while Chinese Research Surges (Scientific American)

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U.S. Department of the Treasury

U.s. department of the treasury announces up to $83 million in american rescue plan small business support to drive economic growth for 125 alaska tribes.

Unprecedented collaboration between Tribes has generated the largest small business financing consortium in the country.

WASHINGTON – Today, the U.S. Department of the Treasury announced the approval of up to $83 million in State Small Business Credit Initiative (SSBCI) funds for a consortium of 125 Alaska Tribes. Funded by the Biden-Harris Administration’s American Rescue Plan (ARP), this investment supports the nation’s largest Tribal SSBCI consortium and is part of the most expansive investment in small business financing for Tribal governments in history. The launch of intertribal SSBCI consortia has been critical to enabling small, remote, and capacity-constrained Tribes to access federal funding. Through the consortium, 125 Tribes will access critical economic development resources for Alaska’s Tribal economy.

The funds are anticipated to catalyze as much as $830 million in additional private sector investment across the state and in Native-owned businesses. The funding will be administered on behalf of the Tribal consortium by the Alaska Small Business Development Center (Alaska SBDC) within the University of Alaska Anchorage (UAA) Business Enterprise Institute (BEI).

For the first time ever, the ARP included dedicated SSBCI funding for Tribal governments. With today's announcement, Treasury has now approved SSBCI applications for up to $415 million to support more than 220 Tribes through the SSBCI Capital Program for small businesses and Tribal enterprises. 

“Today’s announcement reflects success that is only possible when federal agencies listen to Tribal Nations to understand their unique needs and incorporate their feedback in developing program policy and guidance. Through the flexibility of the consortium model, these Tribes will benefit from the historic opportunity that these resources for small businesses presents to Indian Country. These funds will serve some of the most rural populations in the United States, creating jobs and expanding capital access for Tribes across Alaska. We look forward to following this announcement with Treasury’s first official visit to an Alaska Native Village at Chickaloon Village,” said U.S. Treasurer Chief Lynn Malerba.

“Our Tribe is looking forward to the transformational impact this funding can have on the Tribal economy of Alaska. Rural Alaska is entrepreneurial. Our SSBCI consortium will address capital access barriers and unlock private financing for all of our small businesses that are ready to grow,” said Rena Greene, Deputy Director and Acting Executive Director of Nome Eskimo Community, one of the 125 consortium member Tribes.

“Alaska’s tribes are the backbone of our rural economies. The Alaska SBDC is proud to have worked with the Alaska Federation of Natives to bring 125 Alaskan tribes together in the largest tribal consortium in the nation. This collaborative effort over the last two years will result in hundreds of millions of dollars in private sector loans and equity investments flowing into rural and Alaska Native-owned businesses, drastically changing the economic landscape of some of the most remote communities in the nation,” says Alaska SBDC State Director Jon Bittner.

“When the American Rescue Plan Act was signed by President Biden, AFN set out to make sure that Alaska Tribes accessed as much of the funding as possible. Our Navigators worked closely with UAA to help over 100 Tribes access SSBCI, an unprecedented program for Tribal nations. We are proud of that work and proud of the over $80 million in small business funding that we are bringing to Native Alaska,” said Executive Vice President and General Counsel for the Alaska Federation of Natives Nicole Borromeo.

"Our local and Alaska-Native centric economies thrive and rely on homegrown small businesses—from coffee shops to electricians. This funding invests in what’s already working here in our state and helps us grow our economies the Alaska way, not the Lower 48 way,” said Congresswoman Mary Sattler Peltola.

Reauthorized and expanded as part of the ARP, SSBCI is a nearly $10 billion program to support small businesses and entrepreneurship in communities across the United States by providing capital and technical assistance to promote small business stability, growth, and success. SSBCI represents a transformational investment in American small businesses and is expected to catalyze at least $10 of private investment for every $1 of SSBCI Capital Program funding to increase access to capital to small businesses and entrepreneurs, including those in underserved communities.

The Alaska SSBCI Tribal Consortium offers four programs, approved for up to $83.1 million. The programs include a Loan Participation Program, a Loan Guarantee Program, a Collateral Support Program, and an Equity/Venture Capital Funds Program.

The Loan Participation and Loan Guarantee Programs, allocated $10.3 and $37.9 million respectively, are designed to reduce interest rates or risks associated with critical small business investments in Alaska and Native-owned businesses. The Collateral Support program, allocated $12.0 million, will provide collateral for small business lending. The program will incentivize loans to underserved borrowers across Alaska. Rural Tribal communities in Alaska depend on small businesses like fishing operations and tourism enterprises, and collateral support is expected to incentivize lenders to support those businesses. The equity/venture capital program, allocated $22.9 million, provides equity capital support to small businesses through a new venture capital program implementing a fund investment strategy, targeting Tribal member-owned businesses, mostly located in rural areas of Alaska.

The Treasury Department has worked across the Biden-Harris Administration to deploy historic support from the American Rescue Plan to Indian Country, including over $500 million in Tribal SSBCI funding and $20 billion allocated through the State and Local Fiscal Recovery Fund program to nearly 600 Tribal governments, the largest-ever single infusion of federal funding into Indian Country. The Biden-Harris Administration has also delivered the largest-ever infusion of federal capital to Native-serving CDFIs through the Emergency Capital Investment Program, Rapid Response Program and Equitable Recovery Program. Treasury invested $234 million in Native-owned and Native-majority shareholder depository institutions through the Emergency Capital Investment Program (ECIP), and Treasury projects that the investments across the ECIP portfolio could increase lending in Native communities by up to nearly $7 billion over the next decade based on preliminary analysis.

Lenders and small businesses who are interested in receiving more information about the consortium’s SSBCI programs can contact: [email protected] or [email protected] .

August 2024 Venture Growth Funding Recap

• August 9, 2024

In July 2024, Growthink Capital Research tracked new venture funding, amounting to $7.77 billion, compared to $15.28 billion reported in June 2024.

The month’s biggest funding event belonged to  Clio  ($900 million) a cloud-based practice management platform designed to provide legal client management remedies enabling clients to effectively manage cases.

Twenty-three companies raised $100 million or more in July. Other than Vantage Data Centers, the other Twenty-two companies that raised the most are as follows:

Applied Intuition  ($300 million) an advanced simulation infrastructure software designed to safely develop, test, and deploy autonomous vehicles enabling automotive industries to comprehensively test and rapidly accelerate their autonomous vehicle development.

Element Biosciences  ($277 million) an analysis tool intended to be used for the research and diagnostic markets enabling medical researchers to benefit and improve their research.

Cardurion Pharmaceuticals  ($260 million) a cardiovascular therapeutics intended to treat cardiovascular diseases enabling healthcare professionals to prevent arrhythmia disorders and heart failures.

Cosm  ($250 million) a global technology platform designed to allow people to experience entertainment in a new way thereby enabling individuals with live immersive sports and entertainment content.

Altana  ($200 million) a global supply chain platform intended to offer trade data management services enabling businesses, governments, and financial service providers to make trade safer, efficient, and profitable.

Tekion  ($200 million) a cloud-built platform intended to connect digital experiences to automotive retail enabling car dealers to seek a better way to do business while providing customer experiences and increasing efficiency, revenue, and retention.

Creatio  ($200 million) a no-code platform designed to automate industry workflows and customer relationship management (CRM) with a maximum degree of freedom, enabling non-technical users to create powerful business apps without coding with its no-code user interface builder and drag-and-drop visual design tools.

Kestra  ($196 million) an external and internal cardiac medical device intended for the healthcare industry, delivering care and vital information and helping patients and their care teams harmoniously monitor, manage, and protect life.

Saronic  ($175 million) unmanned surface vehicles intended to enhance maritime security and domain awareness, enabling defense and surveillance sectors to achieve comprehensive operational capabilities.

Dignifi  ($175 million) a SaaS financial platform intended to connect consumers with lenders for auto parts, repairs, and services enabling consumers to access and get auto repair financing done.

Beacon Therapeutics  ($170 million) a clinical-stage biotechnology company intended to treat patients with rare lung and eye diseases, enabling clinical to transform the lives of patients with severe diseases.

Third Arc Bio  ($165 million) a biotech company intended to research multifunctional antibodies providing medical companies with antibodies for immune system diseases.

Vanta  ($150 million) a compliance and security automation software designed to keep consumer data safe, enabling businesses to have a credible security program and obtain compliance certifications.

Omni Fiber  ($150 million) an internet service for the small markets in the Midwestern United States. Delivering high speed, reliability, and simplicity to its internet clients.

Aven  ($142 million) a fintech company offering home equity lines of credit, allowing users to have more financial flexibility and savings.

IntelePeer  ($140 million) a CPaaS-based cloud platform built to offer on-demand IP communications and SIP services for enterprises, enabling clients to deliver better customer experience and satisfaction.

Chainguard  ($140 million) a supply chain security software designed to make the software lifecycle secure by default enabling businesses to manage their supply chain security risks.

Monarch Tractor  ($133 million) an electric, automated, smart tractor designed to assist with the transition to productive, precise, and sustainable farming practices. Enables farmers the ability to enhance their existing growing operations, reduce costs, and increase yield.

Gloo  ($110 million) a digital and social engagement platform designed to manage the entire personal growth and development cycle for organizations, enabling clients to attract, connect with, and grow the people they care about.

Spring Health  ($100 million) a digital healthcare platform intended to provide personalized mental healthcare for employee well-being, enabling employees to modernize their behavioral health benefits with an effective and comprehensive alternative.

Headway  ($100 million) a mental health provider platform intended to help users have access to affordable healthcare, enabling mental health providers to expand their practices and individuals to save money on mental health services.

Pindrop  ($100 million) a phone fraud detection and call center authentication technology intended to provide security, identity, and trust in every voice interaction, enabling enterprise call centers and businesses to reduce call time and improve their customers’ experience while reducing fraud losses.

The hottest sectors for funding during the month were A.I./Machine Learning, Biotech, Business/Productivity Software, Mobility Tech, and Climate Tech.

Key funding events in each of these sectors for the month are below:

A.I./Machine Learning  deals included  IntelePeer  ($140 million),  Mytra  ($78 million),  Captions  ($60 million),  Pearl  ($58 million),  Gradient AI  ($56 million),  Ema  ($50 million),  Armada  ($40 million),  Loyal  ($33.5 million),  Credo AI  ($21 million),  Thoughtful AI  ($20 million),  Phaidra  ($12 million),  Sybill  ($11 million),  Monto  ($9 million),  Shaped  ($8 million),  Vijil  ($6 million),  EdgeRunner  ($5.5 million),  Zest Security  ($5 million), and  Language I/O  ($5 million).

Biotech  deals included  Cardurion Pharmaceuticals  ($260 million),  Beacon Therapeutics  ($170 million),  Third Arc Bio  ($165 million),  Airna  ($90 million),  Clarapath  ($36 million),  LTZ Therapeutics  ($20 million),  Pinetree Therapeutics  ($17 million),  Antheia  ($17 million),  Kanvas Biosciences  ($12.5 million),  Granza Bio  ($7 million), and  Predicta Biosciences  ($5.2 million).

Business/Productivity Software  deals included  Tekion  ($200 million),  Creatio  ($200 million),  Trio Mobil  ($26 million),  OnRamp  ($14.2 million), and  Lekko  ($4.5 million).

Mobility Tech  deals included  Applied Intuition  ($300 million),  Eve Air Mobility  ($94 million),  Hayden AI  ($90 million),  Archer Aviation  ($55 million), and  Lasso (Revv)  ($9.8 million).

Climate Tech  deals included  LevelTen Energy  ($65 million),  Applied Carbon  ($21.5 million),  Cowboy Clean Fuels  ($13 million), and  Earthshot  ($5.5 million).

If you’re looking for outside funding to grow your company, please either reply to this email, call us at (213) 927-3968, or learn more about our services on our  website .

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• July 23, 2024
• General Business
• July 18, 2024

Special Features

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Cloud Infrastructure Month

What AI bubble? Groq rakes in $640M to grow inference cloud

In the gold rush, be the one handing out the shovels.

Even as at least some investors begin to question the return on investment of AI infrastructure and services, venture capitalists appear to be doubling down. On Monday, AI chip startup Groq — not to be confused with xAI's Grok chatbot — announced it had scored $640 million in series-D funding to bolster its inference cloud.

Founded in 2016, the Mountain View, California-based startup began its life as an AI chip slinger targeting high throughput, low cost inferencing as opposed to training. Since then the company has transitioned to an AI infrastructure-as-a-service provider and walked away from selling hardware.

In total, Groq has raised more than $1 billion and now boasts a valuation of $2.8 billion, with its latest funding round led by the likes of BlackRock, Neuberger Berman, Type One Ventures, Cisco Investments, Global Brain, and Samsung Catalyst.

The firm's main claim to fame is that its chips can generate more tokens faster, while using less energy, than GPU-based equipment. At the heart of all of this, is Groq's Language Processing Unit (LPU), which approaches the problem of running LLMs a little differently.

AI has yet to pay off – or is transforming business

As our sibling site The Next Platform previously explored , Groq's LPUs don't require gobs of pricy high-bandwidth memory or advantaged packaging — both factors that have contributed to bottlenecks in the supply of AI infrastructure.

Instead, Groq's strategy is to stitch together hundreds of LPUs, each packed with on-die SRAM, using a fiber optic interconnect. Using a cluster of 576 LPUs, Groq claims it was able to achieve generation rates of more than 300 tokens per second on Meta's Llama 2 70B model, 10x that of an HGX H100 system with eight GPUs, while consuming a tenth of the power.

Groq now intends to use its millions to expand headcount and bolster its inference cloud to support more customers. As it stands, Groq purports to have more than 360,000 developers build on GroqCloud creating applications using openly available models.

Training AI models is solved, now it's time to deploy these models so the world can use them

"This funding will enable us to deploy more than 100,000 additional LPUs into GroqCloud," CEO Jonathan Ross said Monday.

"Training AI models is solved, now it's time to deploy these models so the world can use them. Having secured twice the funding sought, we now plan to significantly expand our talent density.

These won't, however, be Groq's next-gen LPUs. Instead, they'll be built using GlobalFoundries' 14nm process node, and delivered by the end of Q1 2025. Nvidia's next-gen Blackwell GPUs are expected to be arriving within the next 12 or so months, depending on how delayed they turn out to be.

Groq is said to be working on two new generations of LPUs, which, last we heard, would utilize Samsung's 4nm process tech and deliver somewhere between 15x and 20x higher power efficiency.

You can find a deeper dive on Groq's LPU strategy and performance claims on The Next Platform .

VC Capital continues to flow into AI startups

Groq isn't the only infrastructure vendor that's managed to capitalize on all the AI hype. In fact, $640 billion is far from the largest chunk of change we've seen startups walk away with in recent memory.

As you may recall, back in May, GPU bit barn CoreWeave scored $1.1 billion in series-C funding weeks before it managed to talk Blackstone, Blackrock, and others into a loan for $7.5 billion using its GPUs as collateral.

Meanwhile, Lambda labs, another GPU cloud operator, used its cache of GPUs to secure a combined $820 million in fresh funding and debt financing since February, and it doesn't look like it is satisfied yet. Last month we learned Lambda was reportedly in talks with VCs for another $800 million in funding to support the deployment of yet more Nvidia GPUs.

• Stock-trading apps fall under the feet of stampeding panicking investors
• Enterprise spend on cloud up sharply as world biz splashes $80B in Q2
• Nvidia reportedly delays Blackwell GPUs until 2025 over packaging issues
• Intel to shed at least 15% of staff, will outsource more to TSMC, slash $10B in costs

While VC funding continues to flow into AI startups, it seems some on Wall Street are increasingly nervous about whether these multi-billion-dollar investments in AI infrastructure will ever pay off.

Still that hasn't stopped ML upstarts, such as Cerebras, from pursuing an initial public offering (IPO). Last week the outfit, best known for its dinner plate-sized accelerators aimed at model training, revealed it had confidentially filed for a public listing.

Is AI going to pay its way? Wall Street wants tech world to show it the money

The size and price range of the IPO have yet to be determined. Cerebras' rather unusual approach to the problem of AI training has helped it win north of $900 million in commitments from the likes of G42.

Meanwhile, with the rather notable exception in Intel, which saw its profits plunge $1.6 billion year-over-year in Q2 amid plans to lay off at least 15 percent of its workforce, chip vendors and the cloud providers reselling access to their accelerators have been among the biggest beneficiaries of the AI boom. Last week, AMD revealed its MI300X GPUs accounted for more than $1 billion of its datacenter sales.

However, it appears that the real litmus test for whether the AI hype train is about to derail won't come until the market leader Nvidia announces its earnings and outlook later this month. ®

• Large Language Model
• Semiconductor
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• Cadence Design Systems
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Walt Disney Experiences Chairman Josh D'Amaro laid out an ambitious growth plan for the company’s theme parks on Saturday at the D23 fan convention, announcing plans for four new cruise ships and details about six new themed lands.