Funding Your Business Part 2- Venture Capital
In this series of articles, we will examine the financial options and programs available to business owners to fund their business.
By Debbie Gregory.
In part 1 of this series, we have looked at the option of using your own money or assets to fund your business. Now we will look at using someone else’s.
If you are willing to take on investors, venture capital might be a good option. This can come from a single person, often referred to as an angel investor, or a venture capital firm. Angel investors are usually affluent individuals who provide capital for a business start-up, and more often than not are looking for convertible debt or ownership equity, as well as an active role in the company.
When you secure venture capital funds, you are not taking out a loan. You are offering a piece of the pie in exchange for funds to be used to drive your business venture down the road to success.
If you want to attract investors, do your homework in advance. Watch a few episodes of Shark Tank to understand how investors evaluate a potential investment. Although this is just a quick introduction, you’ll see how they value a company based on the amount of money requested and percentage of business offered, while inquiring about past performance, future projections, profit margins, the backgrounds of the principals, etc. You will see the importance of coming in with an appropriate valuation. Often times a deal is made based on the quality, passion, commitment, and integrity of the entrepreneurs.
Investors will want to review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.
After determining the amount of the investment, you will need to settle on the terms and conditions. Venture funds are normally released in predetermined rounds. As the company meets milestones, further rounds of financing are made available, possibly with adjustments in price as the company executes its plan.
Veteran and Military Business Owners Association, VAMBOA,
