If you have obtained the maximum amount of funding assistance that you can get from your family, friends, your bank, and business angels, and the remaining amount that you need exceeds $100K, then you might be a candidate for an investment from a venture capitalist. Although different firms deal with varying amounts, venture capital is normally reserved for very large investments. Not only that, but quite often the funds are only available for businesses that are past the initial, or seed, stage. In fact, it's quite rare to find investments at this level for business start-ups. In the majority of cases, investment firms will want to see that the business asking for their help is already profitable, and that the additional money is need to expand it from where it is into something big enough to generate a healthy profit for the investors.
As with business angels, venture capitalists also like to spread the risk. More than any other funding source, they are likely to put together a funding consortium. They, too, will expect the person(s) who request the funding to make a substantial financial commitment to the success of the enterprise. This may mean that key people have to mortgage or re-mortgage their homes as well as commit much of their other assets to the success of the venture. This is so that the risk of business failure is minimized.
Venture capitalists, in all probability, would want a percent of the company and at least one seat on the board. They would expect the company to grow vigorously, perhaps by as much as three to five times its current size within a few years, and still enable them to enjoy an attractive exit at the end of that time.
Of all the investment strategies, this one is the hardest to get simply because of the sums involved.
Businessmen and women who want to obtain funding from one of these firms will need to prepare a professionally written and presented business plan that anticipates every objection and provides an optimum answer in every case. The plan will need to persuade investors that the product or service is optimum for the market and that the market strategy will work beyond their wildest dreams. Having a full order with a waiting list always helps.
In addition, investors will need to be confident that the team of people who will be running the business are the best available. The financial projections need to be calculated in such a way that the costs are overestimated and the profits lower than expected.
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