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Venture Capital Business Plan: A Guide for Entrepreneurs

AUG.01, 2023

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.

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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Venture Capital Business Plan

• Written By Dave Lavinsky

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.

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Blog categories.

• Business Planning
• Venture Funding

The Ultimate Guide to Getting VC Funding

Written by Dave Lavinsky

This guide to VC Funding is the result of 20+ years of Growthink helping entrepreneurs and businesses raise venture capital or VC funding. Over this time, we have helped pitch thousands of venture capitalists, hosted VC gatherings, and even had many VCs as clients.

Below you’ll learn everything you need to know about how to get venture capital funding for your company.

Here’s an outline of this VC funding guide:

• What is Venture Capital?

The Value that Venture Capitalists Offer

How venture capital firms make money, types of companies that venture capital firms finance, how venture capitalists assess companies, the presentation materials you need to raise vc funding, factors to consider when seeking a venture capital firm, how to create your list of potential venture capital firms, identifying the right partner at a venture capital firm, the three ways to contact venture capitalists, meeting with venture capitalists, vc funding faqs,  what is venture capital.

Venture capital, also abbreviated as “VC”, is a subset of private equity and refers to institutional investments in early-stage, high-potential growth companies (like yours).

Private equity refers to investing in shares in privately-held companies, rather than publicly-traded stocks.

And in this context, institutional means that venture capitalists are NOT investing their own money as angel investors do. Instead, they are investing money on behalf of institutions, such as pension funds and university endowments (as well as the collective funds of some very wealthy individuals).

A venture capital firm is an investment company that regularly makes venture capital investments.

The size of the venture capital fund is the specific amount of money the venture capital firm has raised (from pension funds, etc.).  Successful VC firms regularly raise new venture capital funds to invest in promising new companies.

A venture capitalist is an individual who works at a venture capital firm, who makes such investments.

Venture capitalists often provide value beyond the actual dollars they invest in your company. Venture capitalists often provide additional value via:

• Contacts that they have in their networks that can help your business
• Advice in running your business, based on deep experience in your industry and in successfully growing ventures
• Contacts to additional sources of capital

Many VC firms are made up of entrepreneurs who have launched and grown their own successful businesses. As such, they are often able to provide significant strategic guidance and connections that can help your business grow.

To recap, a VC firm is a financial institution that focuses on providing capital, in the form of equity, to companies that offer them the prospects of significant growth.

The partners and associates at venture capital firms are known as venture capitalists. The term “VC” or “VCs” applies to both venture capital firms and venture capitalists.

Unlike an angel investor, VCs are professional institutions that invest other people’s money. VC firms raise capital for their own funds from sources that primarily include pension funds, financial and insurance companies, endowments and foundations, individuals and families, and corporations.

The VCs are then charged with finding high-growth companies, making investments in them at favorable terms, guiding and nurturing them, and enacting a liquidity event (e.g., selling the company or having it complete an initial public offering).

Because they are utilizing other people’s money, and are judged and compensated by the performance of their investments, venture capitalists are extremely rigorous in their investment decision-making process.

VCs tend to invest in companies with a significant market potential of $50 million, $100 million, or more. This is because even with all their relevant experience, the average venture capital firm will lose money on half the companies they invest in and only break even on a third.

Where VCs make their money is on the approximately 20% of companies they invest in that see explosive growth and provide remarkable returns of 10 times to 100 times or more on their investment.

Specifically, it is important to note that relatively few venture capital investments produce large gains. In fact, venture capital industry insiders sometimes refer to the 2:6:2 rule. This rule is that an average portfolio of ten investments will include two losses (e.g., companies go bankrupt), six moderately performing companies (may break even on the investment or lose a little), and two very successful returns.

In fact, an analysis by Bygrave and Timmons of venture capital funding between 1969 and 1985  found that just 6.8% of investments returned ten times or more of the invested capital. Conversely, over 60% of investments lost money or failed to exceed the amount of money earned if the capital had been put in an interest-bearing bank account.

The result of this analysis is that typically a venture capitalist will want to see the ability to get 10X their money back or more from investing in your company. As such, if you are seeking $1 million from VCs, you must show them a realistic scenario where you can turn that $1 million into $10 million.

Most venture capital firms invest between $1 million and $25 million in the companies they fund. The amount they provide often reflects the size of their funds. For example, a VC with a billion-dollar fund cannot manage 1,000 one-million-dollar investments and thus tends to offer more capital to each company it funds.

Virtually all VC firms have specific criteria that guide them such as the amount of financing they give to a company, the stage at which they like to invest, the sectors they are interested in, and the geographic area in which they will invest.

Also, venture capital firms have very strict criteria regarding scale, speed, and liquidity potential. They want to fund companies that can grow very quickly, achieve significant revenues, and be sold or go public for many times the company’s current valuation. Typically, venture capital firms like to exit an investment within 5 to 7 years.

As a result, VCs tend to fund technology companies that typically have scale, speed, and exit potential.  Remember, they are looking for companies with the potential to turn every $1 million they invest into $10 million.

As mentioned, venture capitalists primarily look for companies that can grow really fast with an infusion of capital.

The other key thing that VCs look for is a quality management team. In fact, many VCs say they rather bet on the jockey (i.e., the management team) than the horse (i.e., the company’s products and/or services).

With regards to the management team, VCs look for the following:

• Management teams who have successfully worked together in the past.
• Management teams who have succeeded in prior positions.
• They are known as experts in their industry.
• They have been working in their industries for a long time and know all the ins and outs.
• Entrepreneurs and venture capitalists are partners. That is, they generally work very closely together to achieve a common goal (growing a successful company and getting to an exit). As such, it is critical that there be a good personality fit and ability to work together between the VC and the company’s founder/management team.

In  order to raise venture capital, you need to develop the following presentation materials:

• Teaser email
• Business Plan (including financial projections)
• Slide Presentation/Pitch Deck

The Teaser Email

“Teaser” emails are emails that “tease” the VC into wanting to learn more about your company.

The teaser email typically includes 5 to 6 bullets about the venture and is very short (200 words or less).  The goal of the email is simply to create a general interest in your venture so the VC commits time and energy to learn more about it (by requesting additional documents or setting up a meeting).

Below are two teaser emails (edited for confidentiality purposes) that I have used to generate tons of VC meetings:

I am contacting you because I am confident that our company will interest you.

Key facts about our company include:

• Leader in developing XYZ technology to improve ABC. 3rd party research shows that this market is poised to grow from $100 million in 20XX to $2.5 billion in 20XX.
• Our president is one of the world’s leading authorities on XYZ technology. He has six XYZ patents and was one of twelve experts worldwide who spoke at the recent XYZ technology conference.
• Our technology provides critical advantages over ABC devices (the technology it displaces) and other XYZ firms.
• 2008 revenues/grants total nearly $500K.
• Key strategic alliances/partnerships have been formed with Partner 1, Partner 2, and Partner 3.
• Our company is based in Madison, WI.

We expect to close this round of venture capital financing in the amount of $5 million in the next 90 days. Please contact me directly at [555-555-5555] if you would like to learn more about our company and/or to schedule a meeting.

Per my phone message today, I am contacting you because I believe you would be interested in learning more about my company, Rockin’ the News.

Key facts about Rockin’ the News include:

• Rockin’ the News is a music news social networking website
• We fulfill a large, untapped niche in the music news/social networking space
• Millions of monthly searches for music/entertainment news topics
• Primary sites (e.g., MTV.com, RollingStone.com, etc.) are not fulfilling the needs of the target market
• Rockin’ the News offers comprehensive news coverage and social networking capabilities
• $500,000 cash invested to date by founders
• 11 person full-time team
• Strong customer traction
• 50,000 organic unique visitors in March
• 100,000 organic unique visitors in April
• Favorable investment metrics
• 20 social networking acquisitions in the past 24 months
• Average acquisition price exceeding $50 per member
• Rockin’ the News has proven an ability to enroll members for under $1
• Credentialed team with startup experience and track record of acquiring online music customers
• Currently raising $3 million in expansion capital primarily for marketing to aggressively grow site membership

We expect to close this round of financing within the next 90 days. Please contact me directly at (555) 555-5555 to learn more about us and/or to schedule a meeting.

Both of these teaser emails achieve their goals, which were to:

• Create intrigue and excitement
• Show that the market size was big enough
• Prove that the management team was capable of executing and could generate revenues
• Show key partnerships that could spur the company’s growth
• Create a sense of urgency (implying that we were going to get financing within 90 days with or without them)

The Business Plan

A lot of entrepreneurs like to think that business plans are no longer totally necessary – that they’re “old school.”

Because we at Growthink have been helping entrepreneurs raise venture capital since the 1990s, we remember the days when some startup companies got funded solely based on your business plan alone. We realize that those times are gone and that venture investors are much, much more rigorous these days.

It’s also true that your business plan usually is NOT the first communication you have with an investor. You shouldn’t just send your business plan around to venture capitalists left and right.  Instead, at the beginning of your dialogue with a VC, you’re much better off sending a PowerPoint or an Executive Summary rather than the whole business plan, unless the investor specifically requests to see your business plan.

To help you complete your plan, here is our business plan template , and tips for writing a business plan for venture capitalists . 

The Investor Slide Presentation or Pitch Deck

The final piece of the presentation materials you need to raise venture capital is your slide presentation or Pitch Deck.

A well-crafted pitch deck will contain the highlights of your business and financial plans and should echo the clarity that is put forth in your Executive Summary.

Learn more about how to create an effective pitch deck , complete with over 100 examples of pitch decks that raised funding.

Once you prepare your marketing and presentation materials, the next part of the venture capital process is to find the right firm. While this may seem simple, it isn’t. There are thousands of venture capital firms in the United States alone, and going after the wrong ones is one of the most common reasons why companies fail to raise the capital they need.

When seeking a venture capital firm, there are seven key variables to consider:

• Location : Most venture capital firms only invest within 100 to 200 miles of their office(s). By investing close to home, the firms are able to more actively get involved with and add value to their portfolio companies.
• Sector preference : Many venture capital firms focus on specific sectors such as healthcare, information technology (IT), wireless technologies, etc. In most cases, even if you have a great company, if you fall outside of the VC’s sector preference, they’ll pass on the opportunity.
• Stage preference : VCs tend to focus on different stages of ventures. For instance, some VCs prefer early-stage ventures, for example, emerging companies with no revenues, where the risk is great, but so are the potential returns. Conversely, some VCs focus on providing capital to established companies to bridge capital gaps before they go public.
• Partners : Venture capital firms are composed of individual partners. These partners make investment decisions and typically take a seat on each portfolio company’s Board. (Note that companies that VCs fund are known as “portfolio companies.”)

Partners tend to invest in what they know, so finding a VC partner that has past work experience in your industry is very helpful. This relevant experience allows them to more fully understand your venture’s value proposition and gives them confidence that they can add value, thus encouraging them to invest.

• Portfolio : Just as you should seek venture capital firms whose partners have experience in your industry, the ideal venture capital firm has portfolio companies in your field as well. In fact, a VC may ask the management teams of their portfolio companies about your venture since these individuals are industry experts. In addition, if your venture has potential synergies with a portfolio company, this may significantly enhance the VC’s interest in your firm.
• Assets : Most companies seeking venture capital for the first time will require subsequent rounds of capital. As such, it is helpful if the VC has “deep pockets,” that is, enough cash to participate in follow-on rounds. This will save the company significant time and effort in raising future funds.
• Fit : As mentioned previously, entrepreneurs and VCs are partners. That is, they generally work very closely together to achieve a common goal (growing a successful company and getting to an exit). As such, it is critical that there be a good personality fit and ability to work together between the VC and the founder/management team.

Finding the right venture capital firm is absolutely critical to companies seeking venture capital. Success yields you both the capital your company requires and significant assistance in growing your venture. Conversely, failing to find the right firm often results in raising no capital at all and being unable to grow your company.

If you talk to an experienced direct marketer, they will tell you that “The list is everything.” If you don’t have the right list, you are wasting your marketing dollars. The right list is ten times as important as whatever you put in the mailing envelope, or whatever offer you include in your outbound telemarketing script.

The same holds true for your list of prospective venture capital firms. That is if you are going after the wrong VCs, no matter how good your company is, you probably won’t get funding.

There are three steps to creating a killer VC list.

• Develop a list of VC funds. You can do this either by purchasing a list or database access from a firm such as Growthink Research or by going to the National Venture Capital Association’s website (which lists NVCA member organizations).
• Narrow your list. VCs invest primarily based on:
• Market sector
• Stage of development
• Geographic location

The other factors presented in the last section, mainly partners, portfolio, assets, and fit, become more important after you create your initial list.

Virtually all VCs have websites that make this information readily available. Find investors that are a fit with your company for all three of these areas. For instance, if you are a pre-revenue software company based in Chicago, your best bet is to find a venture capital firm within 200 miles of Chicago that has experience funding pre-revenue software companies. Sites like Growthink Research allow you automatically filter your lists by these criteria.

• Make sure the VC is active. Go to the press release section of the VC’s website and/or search Google News to see how active the VC is. If your venture capital deal isn’t done within a year, they probably are not actively investing in new deals and may not be worth contacting.

What you will be left with is a list of VCs that are actively seeking companies like yours. Once you have this list, you need to identify the right partner at that firm to contact.

As mentioned above, venture capital firms are composed of individual partners (and associates that assist them). These partners make venture capital investment decisions and typically take a seat on each portfolio company’s Board.

Partners tend to invest in what they know, so finding a partner that has past work experience in your industry is very helpful. This relevant experience allows them to more fully understand your venture’s value proposition and gives them confidence that they can add value, thus encouraging them to invest.

Fortunately, most venture capital firm websites list their partners with great pride. Each partner typically has a bio that includes their educational credentials, business accomplishments, and VC investments that they have made. In identifying the right venture capital partner to contact for your company, try to find the partner that, from their background, will truly grasp the opportunity and can really add value.

Once you have identified the most appropriate venture capital partner, it is important to figure out how to contact them. As partners are often inundated with business plans, having a personal connection and/or introduction is often the difference between getting heard and not getting heard.

For instance, if you attended the same university or worked at a company that they did, call or email them and use this as the introduction. If not, it is important to network. Call people that may have been associated with the partner and ask for an introduction.

Getting the partner’s attention is the first key hurdle in raising venture capital. The second hurdle is getting them to believe in the opportunity, and finally, giving them the enthusiasm and information needed to convince other partners in their firm that investing in your venture represents a sound investment.

To recap, at this point, you should have a list of venture capital firms that seem to be a good fit for your company with regards to their geographic, sector, and stage foci. In addition, you have reviewed their websites to make sure they are actively investing, and you have identified the ideal partner at their firm to contact. Now, let’s talk about how to most effectively contact these partners.

There are three main ways to contact partners at VC firms:

• Get an introduction
• Meet them online or offline
• Contact them cold

I have listed these in descending order of preference, meaning that the most effective contact method is via an introduction. Cold contacting is the least effective, however, it still works time and time again.

1. Getting Introductions

Getting an introduction is the easiest way to get a VC’s attention. Because VCs are inundated with pitches from entrepreneurs, they simply lack the time to meet with everyone. An introduction gives you priority over other entrepreneurs who contact the VCs.

There are six key types of individuals who can introduce you to the VC you are seeking.

• Entrepreneurs whom the investor has previously backed or is currently backing.
• Other investors with whom the investor has co-invested.
• Market, product, and technology experts such as senior executives at dominant companies or lauded professors.
• Lawyers, accountants, consultants, and other industry people.
• Angel Investors and Board Members.
• The venture capitalist’s online social networking colleagues.

2. Meeting Venture Capitalists Online or Offline

As mentioned above, many VCs participate in online social networks through which you can get introductions to them.

You can also create relationships yourself with VCs through the online medium.

For example, you can find out if the venture capitalists has a blog (many do). If so, read their blog to learn more about them and what excites them. It is also smart to post comments on their blog. Oftentimes they’ll reply to your comments, and before you know it, you have established a relationship with them.

You might also see if the VC is active on Twitter (many are).  If so, follow them on Twitter and see what they’re posting about.  See if there are opportunities to start a dialogue.

3. Contacting Venture Capitalists Cold

The final way to contact venture capitalists is “cold” – that is, without an introduction and without meeting them at an event or conference or online.

While this method is the most challenging, since you need to get through the VC’s filters, it can be highly effective.

The best strategy for contacting VCs “cold” is to email them. Note that calling them is much less effective as you will nearly always get their voice message and rarely if ever will you receive a callback.

With regards to emailing the venture capitalist, usually, the email address of each partner is listed on the VC’s website. If not, call the VC firm to find out the partner’s email address.

If your email and initial information exchange goes well, the next step will be to meet with the VC, during which you will present your pitch deck.

Upon success with these meetings, you will move into the negotiations and due diligence phases.

VC presentations are similar to presentations to other parties such as potential corporate partners. Your goal is to succinctly present the key points about your venture, get the party excited, and expertly answer any questions they have.

Like other business presentations, it is critical to show up on time and dress appropriately (khakis and a button-down shirt often suffice, but don’t be afraid to call the receptionist of the VC firm and ask). Likewise, everyone you encounter during your visit is important, from the receptionist you meet when you walk in, to the analyst you wash hands next to in the restroom.

Treating anyone with a lack of respect could come back to haunt you. You need to be professional in every aspect of your presentation if you are going to be considered as a candidate for funding.

Below please find 6 articles that answer key VC funding questions.

Common Venture Capital Terms

How to give a convincing venture capital presentation, how to develop a vc elevator pitch, 3 questions venture capitalists will ask you, common vc funding terms and negotiating issues, pre-money vs. post-money valuations.

The following are some of the commonly used terms in the world of venture capital and their meanings:

Elevator Pitch:

Perhaps the most commonly used cliché ever when it comes to acquiring funding for a venture, it is still the most sensible. Picture yourself in an elevator with a potential investor. If you can explain your business concept to the potential investor before the investor gets to their floor, and capture their interest, you have succeeded. Although this scenario probably never occurred in real life (alright maybe once), it is still an excellent idea to imagine yourself in the scenario.

Business Plan:

Nearly every venture capital firm requires a business plan. A business plan starts with an executive summary, which gives a brief synopsis of the business concept and history, industry, market, competition, management, marketing plan, as well as financial projections (see here for the business plan components you must include). The rest of the plan explains the contents in the executive summary in much more detail. The executive summary is the key to getting an investor’s attention.

Slide Presentation/Pitch Deck:

Aside from business plans, venture capital firms require the management team to present a slide presentation in which they show their business concept and summary financial projections. Unlike business plans, which are usually mailed or e-mailed, slide presentations have Question and Answer sessions in which potential investors will prod the management team with questions and ascertain whether the business is of interest to them.

Due Diligence:

VCs or any analytical investors for that matter carry out due diligence before investing in a business. In due diligence, analysts conduct in-depth research, analysis, and forecasts of a business concept and revenues in order to determine the viability and value of a business.

Return on Investment (ROI), Internal Rate of Return (IRR), Hurdle Rate, Net Present Value (NPV):

In conceptual terms, ROI and IRR is where the Cash Flows from a venture break even with the original cost of investment after factoring in the Opportunity Cost of Investment or “interest” that the investor could have gotten from another investment of similar risk. Formulaically, ROI and IRR are the rates of return “r” at which the NPV equals zero according to the basic valuation formula:

NPV= Cash Flows/ (1+r)^t minus Capital Investment, where t=time

The Hurdle Rate is the minimum ROI or IRR a VC or another investor will accept; otherwise, they will refuse to fund a venture.

Although valuation gets more complex than this in reality, the essence of valuation follows these basic principles.

Investors and venture capitalists will often talk about multiples when discussing a prospective venture. Although valuation and complex analysis will take place prior to the funding of a venture, multiples are a language everyone speaks and are used as a way to gut-check forecasts and valuations of financial projections.

For instance, the most commonly used multiple is usually the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiple, which is [Enterprise Value / EBITDA]. Companies in certain industries will usually have EBITDA multiples within a certain range and venture capitalists can use these to assess whether to invest in a certain venture.

Seed Stage:

The seed stage is usually the earliest stage of the company. In the seed stage, a business is forming a management team, developing prototypes of products, or beta testing them in the case of services. Seed-stage VC financing is typically provided by angel investors or friends and family.

Early Stage (Series A&B):

After the seed stage comes the early stage of a company. With early-stage startups, a prototype or concept has been tested and proven and a management team has been formed. However, financing will still be needed for the next stage in order to start production and get the business to a self-sustaining level where retained earnings can fund future projects. Series A refers to the first investment of institutional capital in a company.

Later Stage (Series C, D, etc.):

At this stage, a company is self-sustaining but needs more financing to expand more rapidly in order to increase production or expand to new markets. At this stage, companies have shown that their products or services have traction in the market and that they require financing to “run” with their concept.

Mezzanine Financing:

This is the financing stage right before the IPO. In this stage, the company is in very good shape and is looking for financing before investors cash out during the IPO. The risks involved become less risky as the stages progress and mezzanine financing is much less risky than seed stage, early stage, and later-stage financing.

Initial Public Offering (IPO):

An IPO is the first offering of a company’s shares to the public. It is used by pre-IPO stage investors to cash in on their investment as well as raise money for the company.

Upside is the increase in the value of an investment. It may be realized upon a harvest or exit.

Harvest or Exit:

Venture Capitalists harvest their investments by cashing out during an Initial Public Offering (IPO) or realizing returns on some of their equity investment through a partial or complete sale of the company to an acquirer. An exit is a complete harvest of an investment. Sometimes venture capitalists exit through a stock repurchase by the company in which the remaining equity holders buy the stock of the owners cashing out.

Private Equity:

Private Equity is ownership in companies that are not publicly traded on an exchange. Since private equity is not traded at volumes anywhere near volumes of publicly held companies, it is highly illiquid and requires a higher rate of return. However, the upside of private equity is that it does not need to follow Securities and Exchange Commission (SEC) regulations at the level publicly held companies do, thereby reducing compliance costs. Venture Capital is a type of Private Equity and Private Equity is a type of Equity.

Institutional Investors:

Institutional Investors are investors represented by groups tasked to invest and manage funds on the investors’ behalf. They include pension funds, investment funds, and mutual funds looking to earn a rate of return on their funds that would otherwise lay idle. Many venture capital firms receive investment from institutional investors since venture capitalists are constantly looking for growth opportunities and investment ideas. 

Venture capital presentations are similar to presentations you would give to partners such as corporate or business partners. Your aim should be to highlight the key points about your venture and to expertly answer all of the questions asked, while getting the venture capitalist excited about your idea.

It is important to keep your presentation brief and to the point. The partner with whom you are likely to meet sits through several presentations a day, and will probably not be able to keep up with many of the details in the 20 to 30 minutes that he has allocated to you. Ideally, you will want to include the following points in your presentation:

• What does your company do?
• What is the status of your company?
• What are the key points that make your company unique?
• What pain does your solution solve?
• In what market(s) are you competing?
• How do you generate revenues?
• Who is your competition?
• Who is on your management team?
• What is your timeline/roll-out plan/milestones?
• How much capital are you seeking?

Remember that you are trying to gain the VC’s interest in your company. Your initial meeting is not the time to try and close the deal. If the VC is interested, he will invite you back for further presentations with his business partners.

Overselling your company is a common mistake that entrepreneurs often make in their initial presentations. According to venture capitalist Guy Kawasaki, many entrepreneurs claim to have a “proven management team” and “proven business model” with “patent-pending technology” while enjoying a “first-mover advantage.” He goes on to comment that those entrepreneurs using the above terms are essentially lying. “Oh god, it gives me a migraine just thinking about those things.”

Instead, the presenter should focus on the needs of the VC, which is primarily to make money. Show the VC how your firm will make him money, and back up your assertions with primary or secondary data.

Moreover, you should be ready to handle any of the venture capitalists’ questions regarding your business. Be extremely familiar with your financial model, and have a detailed road map for how you plan to grow a profitable business in the long run. Know why you need venture money, and what you plan to spend it on. Be passionate, and have the ability to display and communicate every last detail of your venture.

Everyone has heard stories about the “Elevator Pitch”-the incredible, brief window of opportunity where an entrepreneur has an investor’s undivided attention to describe their venture.

Implausible as it may be, the successful entrepreneur needs to be prepared to make a compelling case for their business in 60 to 120 seconds, whether it’s in an elevator, at a trade show, or in line at the coffee shop. In the unlikely event that you do find yourself in an elevator with a venture capitalist, you’re going to need to be prepared for it. Here are three keys to hitting a home run on the elevator pitch.

• Most companies make a product or provide a service. Entrepreneurs must be able to clearly define and explain what exactly your company does to make money, and more importantly what the benefits of the product/service are. Focus minimally on how the product works, especially if it’s a complicated piece of technology. Tell your soon-to-be investor what kind of value your product adds to your customers.
• Compare yourself to an existing company. Many entrepreneurs are afraid to mention similar companies fearing that acknowledging competition will make their startup look like a poor investment. This is flawed thinking for two reasons. First, your company isn’t an exact clone of the other company. Second, if it is an exact clone of a much larger competitor, you might need to rethink a few things about your business. When you’re “in the elevator,” don’t be afraid to mention another firm. But don’t stop there-you’re dead in the water if you leave it at that. You must now explain why you are different and how you’re going to beat them using that difference. That’s how you will get a VC’s attention.
• In your last seconds, you need to make the case that the market needs you. Drop a fact or two as evidence that the market has needs that are not being met. You, the entrepreneur, are going to fulfill the need that none of your competitors are fulfilling.

Armed with these tips, there is one final piece of advice – practice. You should practice your elevator pitch over and over so you are able to give it as clearly and concisely as possible.

Having finally made it to the presentation stage with a venture capitalist is a step in the right direction for you and your business. However, apart from evaluating your presentation, venture capitalists will ask you critical questions and evaluate how you formulate your answers. Three key questions a venture capitalist will ask you are:

• How much capital do you need and why?
• What is your valuation?
• What is your exit strategy?

1) Amount of Capital You Need

If you ask someone to give you money, oftentimes they will ask you what you need it for and why. The same thing will happen when you ask a venture capitalist to write you a multi-million dollar check.

The key to answering this question is to know your business inside-out. It is important that you have full mastery of your projected financial model and that you understand how every funded dollar will be used in your business. In other words, you need a deep conceptual understanding of your entire business idea.

It is common for VCs to ask you what you would do with less money. So if you wanted to raise $2 million, they may ask what you would do if you only received $1 million. This will reveal your top priorities and which milestones you would accomplish with less.

2) Your Valuation

To some, this question may be considered a trick question, as there is no right answer.

If a VC asks you during your presentation how much you believe your firm is worth, don’t reply with hundreds of millions of dollars. He will think that you’re unrealistic and not ready to handle the tough reality of start-ups.

If you understate the answer, he will think that something is wrong.

Even if you manage to give a fair estimate of your firm’s value, it may come back to haunt you later in the actual rounds of raising capital. Giving out a fair value allows the VC to discount it and essentially limits your bargaining power when it comes to the actual funding.

Thus, the best answer is to tell the venture capitalist that you will let the market decide on your firm’s value. If you assure them that your company is going to be a success, VCs will create the market on their own. Ideally, they will bid against each other and raise the value of your firm.

3) Your Exit Strategy

This question basically refers to how the VC will get its return on investment. Typically, an “exit” will happen if your firm gets acquired or has an IPO. Both of these are commonly listed exit strategies, although there are many more.

That being said, the best companies tend to have CEOs that are focused on building a successful business for the long run. Venture capitalists know this and look for those leaders willing to put in hard work for years to come.

To this point, Dick Costolo, founder of FeedBurner (acquired by Google) has a great quote – “Make a map of how you want to grow the business, not a map of what you want to happen to the company.”

His quote touches on the principle that successful companies will create their own exit opportunities as they grow. You should focus less on figuring out ways to exit your company, and instead build a great company with the ideas that you have.

When companies enter into negotiations with venture capital firms, there are several issues that need to be defined and agreed upon. This article describes the key issues.

Valuation . Valuation is the most prominent negotiating issue. Valuation is the price of the company in which the venture capitalist invests. Valuation determines what percent of the company the investor is buying for their capital.

Timing of the Investment . Many investors will commit a large amount of capital but will contribute that capital to the companies in installments. Often, these installments are only made when pre-designated milestones are met.

Vesting of Founders’ Stock . Like capital, investors often prefer that stock be given to company founders and key employees in installments. This is known as vesting.

Modifying the Management Team . Some investors insist that additional or substitute management employees be hired subsequent to their investment. This gives investors additional security that the company will execute on its business model. An important issue to negotiate with regards to modifying the management team is the amount of stock or options that will be issued to new management team members, as this will dilute the holdings of the founders.

Employment Agreements with Key Founders . Venture capitalists typically do not want companies to have employment agreements that limit the circumstances under which employees can be fired and/or set compensation and benefits levels that are too high. Other key employment agreement issues to be negotiated with venture capitalists include restrictions on post-employment activities and employee severance payments on termination.

Company Proprietary Rights . If the company has an important product with intellectual property (IP), investors will want to ensure that the company, and not a company employee, owns the IP. In addition, investors will want to ensure that new inventions are assigned to the company. To this end, investors may negotiate that all employees must sign Confidentiality and Inventions Assignment Agreements.

Exit Strategy . Investors are very focused on how they will “cash out” of their investment. In this regard, they will negotiate regarding registration rights (both demand and piggyback); rights to participate in any sale of stock by the founders (co-sale rights); and possibly a right to force the company to redeem their stock under certain conditions.

Lock-Up Rights . Venture capitalists may require a lock-up period at the term sheet stage. The “lock-up period” is typically a 30-60 day period where the investors have the exclusive right, but not the obligation, to make the investment. Investors typically conduct due diligence during this time without fear that other investors will pre-empt their opportunity to invest in the company.

Each of these issues is critical when raising money since the outcome can significantly impact the success of the venture and the wealth potential of the company founders and management team. Because venture capitalists are very knowledgeable regarding these issues and have great skill in negotiating on them, companies who are raising venture capital should seek advisors who also have this experience and expertise.

When a company decides that it must raise capital, a key question that must be answered is how much the company is worth. For example, if the business needs $500,000 to get started and/or grow, how much of the equity in that company should $500,000 command? Once this question is answered, the company will go out and try to find investors. When doing so, a key question often arises as to whether the valuation is “pre-money” or “post-money.”

“Before the money” or “pre-money” and “after the money” or “post-money” denote simple concepts. However, these simple concepts can even confuse even the most sophisticated analysts at times. If a company is valued at $1 million on Day 1, then 25 percent of the company is worth $250,000. However, there may be an ambiguity. Suppose the company and the investor agree on two terms: (1) a $1 million valuation, and (2) a $250,000 equity investment. In this case, the company may offer the investor 250 shares for $250,000. Immediately there can be a disagreement. The investor may have thought that equity in the company was worth $1,000 per percentage point, in which case $250,000 gets 250 out of 1,000 shares or a 25% equity position. Conversely, the company may have believed that the investor was contributing to the enterprise that was already worth $1 million. Under this rationale, the $250,000 would give the investor 250 shares out of 1,250 shares or a 20% equity position.

The critical issue was whether the agreed value of $1 million to be assigned to the company was prior to or after the investor’s contribution of cash (pre-money) or post-money.

In the above case, a pre-money valuation of $1 million and a post-money valuation of $1.25 million were equivalent. Because mixing up the terms could significantly increase the cost of capital raised, companies must be sure to understand the two metrics and agree with investors to the metric that raises the capital at the appropriate price.

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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 / 10 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.

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Home / Resources / How to Start a Venture Capital Fund

How to start a venture capital fund.

By: Allvue Team

December 17, 2023.

Venture capital is more than just a funding mechanism; it’s the driving force behind innovation and growth for early-stage startups. It provides a unique combination of capital, mentorship, and strategic guidance that can catapult a nascent company into the market with strength. For those with an eye for disruptive potential and a heart for risk, starting a venture capital fund is a pathway to potentially remarkable rewards.

Introduction: The Critical Role of Venture Capital

The allure of venture capital lies in its power to disrupt and transform industries. VC firms are the architects of growth, the visionaries who see potential where others see uncertainty. By injecting capital into startups, they do not just fuel financial growth; they enable ideas to take flight, technologies to develop, and markets to evolve. However, starting a venture capital fund requires more than just financial savvy; it demands a deep understanding of market dynamics, a robust network, and a keen ability to assess risk and potential.

Understanding The Venture Capital Landscape

To begin with, it’s essential to grasp what a venture capital firm does and how it differs from other investment entities. A venture capital firm is a catalyst for growth, typically focusing on high-growth startups in exchange for equity. The firm itself is an entity that raises and manages the venture capital fund, which is the investment vehicle. It’s crucial to differentiate between the two as they operate hand-in-hand, but with distinct roles within the venture ecosystem.

The Venture Capitalist’s Blueprint

Becoming a venture capitalist isn’t just about having funds to invest; it’s about building a framework for identifying and nurturing potential. It involves detailed market analysis, an understanding of technological trends, and an ability to foresee market needs. This blueprint will guide the firm’s investment thesis and drive its strategic approach to investing.

Challenges and Opportunities in Venture Capital

The journey of a venture capitalist is fraught with challenges—from the pressure of selecting winning startups to the responsibility of managing investor expectations. However, with these challenges come unparalleled opportunities to shape industries and support innovations that can redefine how we live and work.

Market Research and Planning

Before diving into the creation of a venture capital fund, it’s imperative to conduct extensive market research. This phase involves analyzing market trends, understanding consumer behavior, and identifying the sectors ripe for disruption or growth. Utilizing investment research management tools can greatly enhance this process, providing in-depth insights and data analysis. A venture capitalist must be equipped with a well-researched business plan that outlines the fund’s goals, investment criteria, and operational strategies.

Crafting an Investment Thesis

An investment thesis is a foundational element of any VC fund. It reflects the fund’s strategic focus and guides its investment decisions. A strong thesis is built on thorough market research and a clear understanding of the fund’s value proposition.

Legal and Regulatory Requirements

The formation of a venture capital fund is subject to a complex web of legal and regulatory considerations. It involves navigating through securities law, managing the fund’s structure—often as a limited partnership—and ensuring compliance with all relevant financial regulations.

Structuring the Venture Capital Firm

Deciding on the appropriate structure for your venture capital firm is a critical step. Whether you choose a limited partnership, a limited liability company, or another form, each comes with its own regulatory obligations and implications for fund management.

Compliance and Regulation

Venture capital funds must adhere to strict regulations, including the Investment Company Act of 1940 , and ensure proper registration and compliance . This often requires the expertise of legal professionals specialized in securities law.

Fundraising and Capitalization

At the heart of starting a VC fund is the challenge of raising capital . This endeavor involves pitching the fund to potential investors, which may include high-net-worth individuals, angel investors, institutional investors, and even family offices. The key is to convey the fund’s potential for high returns, backed by a solid investment strategy and a capable management team.

Engaging with Potential Investors

Creating a compelling narrative for potential investors is vital. This narrative should articulate the fund’s vision, the expertise of its management team, and its potential to generate significant returns.

Once the fund is established, the focus shifts to portfolio management . This encompasses the strategic selection and nurturing of startups, allocating funds in a manner that balances risk and potential, and continuously evaluating the portfolio’s performance.

Diversification and Risk Management

Diversification is a central tenet of sound portfolio management. By spreading investments across various sectors and stages of growth, a VC fund can mitigate risk while capitalizing on multiple growth opportunities.

Building a Winning Team

The strength of a venture capital fund is also reflected in the caliber of its team. This includes not only the fund managers and analysts but also advisors who bring industry-specific expertise. The team’s collective knowledge and network can significantly influence the fund’s success.

Defining Roles and Responsibilities

Clear delineation of roles within the VC firm ensures that each team member can contribute effectively. From the general partner who oversees fund operations to the investment analysts who dig into the details of each potential startup, everyone’s role is pivotal.

Investment Decision-Making

Investment decision-making is the cornerstone of venture capital. It involves a thorough evaluation of potential startups, assessing everything from the business model and market potential to the founding team’s expertise and track record.

Due Diligence and Evaluation

Due diligence is a comprehensive process that scrutinizes every aspect of a potential investment. This includes financial analysis, market positioning, and even the intangible aspects like the startup’s culture and vision.

Monitoring and Exit Strategies

A VC fund’s involvement with a startup does not end with the investment. Active monitoring and guidance are essential to steer the company towards growth and a successful exit, whether that’s through an IPO, a merger, or an acquisition.

Planning for Exits

Exit strategies should be contemplated from the outset. These strategies are crucial for realizing the returns on the investments and are a significant aspect of the fund’s overall strategy.

Measuring Success

While financial returns are a primary measure of success for a venture capital fund, other metrics, such as the impact on the industry and the success rate of portfolio companies, are equally important. KPIs provide a quantitative assessment, but qualitative factors like market influence and innovation are also significant.

Resources and Tools

Today’s venture capitalists are backed by an array of resources and tools, from portfolio monitoring software to a purpose-built fund accounting platform to global networking platforms. These resources can greatly enhance a VC’s ability to make informed decisions and manage their portfolio effectively.

Kickstart Your Venture Capital Fund With Allvue

Allvue Systems stands at the intersection of finance and technology, providing the tools and insights necessary for today’s venture capitalists to thrive. From comprehensive venture capital software solutions to industry-specific expertise, Allvue is the partner of choice for those ready to start their venture capital journey. Explore our Solutions , understand Who We Serve , and leverage our Venture Capital Software to elevate your venture capital fund to new heights.

The road to launching a venture capital fund is complex, but with the right preparation, network, and tools, it is a path laden with opportunities for growth, impact, and financial success. Join us at Allvue Systems, where your ambition meets our expertise.

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

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• 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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How to Get Venture Capital Funding in 10 Steps in 2024

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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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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.

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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.

Views expressed in “posts” (including blogposts, podcasts, videos, and social media) and those of the individual Unique.vc personnel or guest authors quoted therein and may not be the views of Unique.vc.

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Business Partner Magazine

Tips and advice for entrepreneurs, start-ups and SMEs

Role of A Business Plan in Getting Venture Capital Funding

April 27, 2022 by BPM Team

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When in need of funding, developing a business plan is critical. A business plan is required by all kinds of investors, including venture capitalists, because it allows them to see the potential of your idea. With a business plan, funders can see whether or not a business concept is worth the investment. Drafting one will help you plan your business operations and assist you in obtaining funding. The primary role of a business plan is to show the profitability potential of your business idea, so you must emphasize how your product or service can generate revenue. Therefore, your business plan should include your product description, costs, revenue forecasts, and an Investment request, among other issues.

Product Description

Funders need to know the service or product you intend to introduce into the market, and a business plan is there to present your idea. In order for a venture capitalist to invest in a business, your product or service should meet a need or close a gap in the market for it to be profitable. Therefore, you need to prove to investors that you have a unique product or service with a market. Keep in mind that investors are drawn to unique products with a competitive advantage. A business plan is there to show whether or not your business idea will be lucrative. You can present your value proposition and elaborate on how you intend to sell your product or service in your business plan. In addition, funders will need to see a market overview to determine if there is a market for your product or service. 

Another important element that venture capitalists want to see in a business plan are the costs of setting up and running your business. These costs include your start-up costs, research costs, insurance, production costs, and other relevant operating costs. Investors will need to understand how much it will cost you to set up your business and operate it. Costs covering a period of about 5 years from inception should be included in your business plan. Always remember that these costs should be neither overstated nor understated if you want to increase your chances of getting capital. 

For a business that is operating already and in need of additional funding, you may need to provide operating costs dating back 3 years or so. Costs show an investor if your business is capable of operating efficiently. That way, it is easier for them to see if you will be able to pay back the funds. 

Projections

You need to prove to investors that your business idea can generate profit through your projections to get the funding. Showing future projections is another purpose your business plan serves. It is critical that you know your numbers and show venture capitalists that your business has the potential to generate high returns. Investors look for growth potential, which is based on realistic forecasts. A business plan must include costs and revenue projections for funders to determine whether it is feasible or not. You should make use of product testing results, past data, and any market data to determine future revenue and costs. Budgets, cash flows, and profit forecasts help venture capitalists assess whether or not your business idea is lucrative. The period in which you anticipate making losses, break even and begin to make profits should also be included in your business plan. Your financial projections should not be overstated otherwise, venture capitalists will not take you seriously. 

The business plan provides information about the directors, founders or managers of the business. This is important because investors need to know about your background and experience in order to determine whether you are fit for the job. It would be risky for a venture capitalist to fund you with little or no information about you, even though you may have a great idea. Your business plan should include your background information and that of your management team. This should include your skills and experience. That way, your potential investor can have confidence in your abilities. Take note that investors are on the lookout for experienced people with a good track record. 

Investment Request

Lastly, the venture capitalist wants to know what they will get from your business in terms of ownership and control. This is included in the Investment Request. The investment request should be added to your business plan. It should clearly provide information about how the venture capitalist will benefit from the project if they decide to invest in you. An investment request must also include your action plans as well as any other suggestions that you may have. This is where you add information about the current stage of your business, whether it is an existing business, if you have already launched the business or if your business is a fresh start-up. This proposal must include the amount of money you seek from the venture capitalist as well as your capital injection if any. Similarly, you should not overestimate or underestimate your business valuation with costs and projections. Many start-ups fail to get funding because of that. It is important to know what you are willing to offer the venture capitalist in terms of business ownership.

When presenting your business plan to a venture capitalist or venture capital firm , ensure that you have customized it accordingly. You must understand that different kind of investors lookout for specific pointers in a business plan. Venture capitalists tend to emphasize issues relating to the market size of your product and issues related to finance. Therefore, you should focus on those areas when presenting your business idea to them. In addition, product characteristics are crucial when presenting your business plan to venture capitalists. Consider doing a bit of research when writing your business plan so that you can focus on the core attributes that Venture Capitalists look out for to increase your chances for investment.

You may also like: 5 Steps To A Successful Integrated Business Planning (IBP)

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Venture Capital Business Plan Template

Looking for a venture capital investment for a growth-oriented business? Make use of this sample outline to create your business plan and improve your chances of attracting equity investors.

The goal of the executive summary is to stimulate and motivate the investor to learn more. Keep it simple, be brief. If your business is truly complex, you can dive into the details later on.

• Company Data

The goal of this section is to educate the investor about your company’s history and explain why your team is perfect to execute on the business opportunity. Give some history and provide the background on the company. Show off your track record. Detail prior accomplishments, including funding rounds, product launches, milestones reached and partnerships secured. Demonstrate your team’s unique competitive advantage or key partnerships.

The goal here is to prove that there is a real market for your product or service. Demonstrate the need for your product. Cite credible and independent sources when describing the size and growth of your market. Determine the relevant market size and focus on the products or services that you will directly compete against. Explain how you would overcome potential negative trends.

Convey the needs of your customers and show how your products or services satisfy those needs. Define your customers precisely. Detail their demographics. How many customers fit the definition and where are these customers located? Use data to demonstrate past actions (X% have purchased a similar product), future projections (X% said they would purchase the product), and/or implications (X% use a product which your product enhances). Explain what drives their decisions. Detail the decision-making process.

Define the competition and demonstrate your competitive advantage. List competitors. Include direct and indirect competitors. Carefully describe their strengths and weaknesses, as well as the key drivers of competitive differentiation in the marketplace. Demonstrate barriers to entry. In describing the competitive landscape, show how your business model creates competitive advantages, and defensible barriers to entry.

Describe how your company will penetrate the market, deliver products/services, and retain customers. Products - Detail all products and services, but focus primarily on the short-to-intermediate time horizon. Promotions - Explain which marketing/advertising strategies will be used and why. Price - Provide a clear rationale for your pricing strategy. Place - Explain how your products/services will be delivered to your customers. Explain how you will retain your customers. Define your partnerships.

Detail the short term processes and systems that provide your customers with your products and services. Business milestones - Lay out the significant long-term business milestones for the company, and prove that the team will execute on the long-term vision.

A set of financial projections is included with this section automatically. Detail your key assumptions here. Detail the uses of funds. Understandably, investors want to know what, specifically, you plan to do with their money. Provide a clear exit strategy. The most common exits are IPOs or acquisitions.

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What Is Venture Capital (VC)?

• Understanding VC

Types of Venture Capital

How to secure vc funding.

• Pros and Cons

Angel Investors

Venture capital success, the bottom line.

• Alternative Investments
• Private Equity & VC

What Is Venture Capital?

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Venture capital (VC) is a form of private equity and a type of financing for startup companies and small businesses with long-term growth potential. Venture capital generally comes from investors, investment banks, and financial institutions. Venture capital can also be provided as technical or managerial expertise.

Key Takeaways

• Venture capital (VC) is a form of private equity and a type of financing for startup companies and small businesses with long-term growth potential.
• Venture capitalists provide backing through financing, technological expertise, or managerial experience.
• VC firms raise money from limited partners (LPs) to invest in promising startups or even larger venture funds.

Investopedia / Michela Buttignol

Understanding Venture Capital (VC)

VC provides financing to startups and small companies that investors believe have great growth potential. Financing typically comes in the form of private equity (PE) . Ownership positions are sold to a few investors through independent limited partnerships (LPs). Venture capital tends to focus on emerging companies, while PE tends to fund established companies seeking an equity infusion. VC is an essential source for raising money, especially if start-ups lack access to capital markets , bank loans, or other debt instruments.

Harvard Business School professor Georges Doriot is generally considered the "Father of Venture Capital." He started the American Research and Development Corporation in 1946 and raised a $3.58 million fund to invest in companies that commercialized technologies developed during WWII. The corporation's first investment was in a company that had ambitions to use X-ray technology for cancer treatment. The $200,000 that Doriot invested turned into $1.8 million when the company went public in 1955.

VC became synonymous with the growth of technology companies in Silicon Valley on the West Coast. By 1992, 48% of all investment dollars went into West Coast companies; Northeast Coast industries accounted for just 20%. During 2022, West Coast companies accounted for more than 37% of all deals while the Mid-Atlantic region saw just around 24% of all deals.

• Pre-Seed: This is the earliest stage of business development when the founders try to turn an idea into a concrete business plan. They may enroll in a business accelerator to secure early funding and mentorship.
• Seed Funding: This is the point where a new business seeks to launch its first product. Since there are no revenue streams yet, the company will need VCs to fund all of its operations.
• Early-Stage Funding: Once a business has developed a product, it will need additional capital to ramp up production and sales before it can become self-funding. The business will then need one or more funding rounds, typically denoted incrementally as Series A, Series B, etc.

$285 billion

The amount global VC-backed companies raised in 2023.

• Submit a Business Plan: Any business looking for venture capital must submit a business plan to a venture capital firm or an angel investor . The firm or the investor will perform due diligence , which includes a thorough investigation of the company's business model , products, management, and operating history.
• Investment Pledge: Once due diligence has been completed, the firm or the investor will pledge an investment of capital in exchange for equity in the company. These funds may be provided all at once, but more typically the capital is provided in rounds. The firm or investor then takes an active role in the funded company, advising and monitoring its progress before releasing additional funds.
• Exit: The investor exits the company after some time, typically four to six years after the initial investment , by initiating a merger , acquisition, or initial public offering (IPO) .

Many venture capitalists have had prior investment experience, often as equity research analysts . VC professionals tend to concentrate on a particular industry. A venture capitalist who specializes in healthcare, for example, may have had prior experience as a healthcare industry analyst.

Advantages and Disadvantages of Venture Capital

Venture capital provides funding to new businesses that do not have enough cash flow to take on debts. This arrangement can be mutually beneficial because businesses get the capital they need to bootstrap their operations, and investors gain equity in promising companies. VCs often provide mentoring and networking services to help them find talent and advisors. A strong VC backing can be leveraged into further investments.

However, a business that accepts venture capital support can lose creative control over its future direction. VC investors are likely to demand a large share of company equity, and they may make demands of the company's management. Many VCs are only seeking to make a fast, high-return payoff and may pressure the company for a quick exit.

Provides early-stage companies with capital to bootstrap operations

Companies don't need cash flow or assets to secure VC funding

VC-backed mentoring and networking services help new companies secure talent and growth

Demand a large share of company equity

Companies may find themselves losing creative control as investors demand immediate returns

VCs may pressure companies to exit investments rather than pursue long-term growth

Venture capital can be provided by high net-worth individuals (HNWIs) , also often known as angel investors, or venture capital firms. The National Venture Capital Association is an organization composed of venture capital firms that fund innovative enterprises.

Angel investors are typically a diverse group of individuals who have amassed their wealth through a variety of sources. However, they tend to be entrepreneurs themselves, or recently retired executives from business empires. The majority look to invest in well-managed companies, that have a fully-developed business plan and are poised for substantial growth.

These investors are also likely to offer to fund ventures that are involved in the same or similar industries or business sectors with which they are familiar. Another common occurrence among angel investors is co-investing , in which one angel investor funds a venture alongside a trusted friend or associate, often another angel investor.

Due to the industry's proximity to Silicon Valley, the overwhelming majority of deals financed by venture capitalists occurred in the technology industry—the internet, healthcare, computer hardware and services, and mobile and telecommunications. In 2023, San Francisco still ranked highest among VC investments. Other industries have benefited from VC funding, including Staples and Starbucks ( SBUX ).

Google and Intel have venture funds to invest in emerging technology. In 2019, Starbucks also announced a $100 million venture fund to invest in food startups. VC has matured over time and the industry comprises an assortment of players and investor types who invest in different stages of a startup's evolution.

Why Is Venture Capital Important?

New businesses are often highly risky and cost-intensive ventures. As a result, external capital is often sought to spread the risk of failure . In return for taking on this risk through investment, investors in new companies can obtain equity and voting rights for cents on the potential dollar. Venture capital, therefore, allows startups to get off the ground and founders to fulfill their vision.

What Is Late Stage Investing?

Late-stage financing has become more popular because institutional investors prefer to invest in less-risky ventures, as opposed to early-stage companies where the risk of failure is higher.

How Have Regulatory Changes Boosted VC?

The Small Business Investment Act (SBIC) in 1958 boosted the VC industry by providing tax breaks to investors. In 1978, the Revenue Act was amended to reduce the capital gains tax from 49% to 28%. In 1979, a change in the Employee Retirement Income Security Act (ERISA) allowed pension funds to invest up to 10% of their assets in small or new businesses. The capital gains tax was reduced to 20% in 1981. These developments catalyzed growth in VC and the 1980s turned into a boom period for venture capital, with funding levels reaching $4.9 billion in 1987.

Venture capital represents a central part of the lifecycle of a new business. Before a company can start earning revenue, it needs start-up capital to hire employees, rent facilities, and begin designing a product. This funding is provided by VCs in exchange for a share of the new company's equity.

World Intellectual Property Organization, " Global Innovation Index 2022 ," Pages 32-33.

University of Pennsylvania, Wharton Faculty Research. "Organizing Venture Capital: The Rise and Demise of American Research & Development Corporation, 1946–1973 ," Page 17.

The Business History Conference. " The Rise and Fall of Venture Capital ," Pages 5-8.

The Business History Conference. " The Rise and Fall of Venture Capital ," Page 8.

National Venture Capital Association. " Pitchbook-NVCA Venture Monitor Q4 2022 ," Download Excel Spreadsheet, Select "Deals x Region."

CrunchBase. " Global Startup Funding In 2023 Clocks In At Lowest Level In 5 Years ."

National Venture Capital Association. " NVCA Members ."

EY. " Venture Capital Investment Remains Slow as Market Seeks New Normal ."

Intel Capital. " Intel Capital Invests $132 Million in 11 Disruptive Technology Startups ."

Google Ventures. " Home ."

Starbucks. " Starbucks Commits $100 Million as Cornerstone Investor in Valor Siren Ventures I ."

American Economics Association. " Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn ," Pages 238-244.

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U. S. Congress. " S. 209, The ERISA Improvements Act of 1979: Summary and Analysis of Consideration ," Page 69.

United States Congress. " H.R.4242 - Economic Recovery Tax Act of 1981 ."

The Business History Conference. " The Rise and Fall of Venture Capital ," Page 10.

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Startup Funding: Strategies For Securing Startup Capital

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Unlocking Types of Startup Funding: A Comprehensive Guide Sources of Startup Funding and Options for Entrepreneurs to Fund Early Stage of Business Ventures

Richard Laviña, CPA

March 21, 2024

Imagine yourself as a pilot preparing for a daring flight across the vast expanse of the sky. Learning about startup funding is like understanding the intricate mechanics of your aircraft and ensuring it's fueled up for the journey ahead. Without this knowledge, you may find yourself grounded before takeoff, unable to soar towards your destination.

However, armed with an understanding of startup funding , you become like a skilled aviator, capable of navigating the turbulent winds of entrepreneurship and guiding your venture to new heights, all while avoiding the pitfalls that could send you crashing down.

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Understanding Different Types of Startup Funding

Exploring seed funding opportunities.

Exploring seed funding opportunities can be crucial for entrepreneurs looking to start a new business or expand an existing startup business . This early-stage funding, also known as Series A, B, or C funding, can come from a variety of sources such as venture capitalists, small business grants, or even business credit cards.

Each series of funding represents a different stage of funding for the startup company, with the seed round being the first round of funding to get funding for a new business idea, product, or service. It is important for business owners to consider their time in business and explore traditional business loans as well as other sources of startup funding .

Diving into Series A, B, and C Funding Rounds

Starting a business venture requires a significant amount of startup business funding to cover the startup costs. Series A, B, and C funding rounds are common types of funding rounds that startup founders can utilize to fund a startup . These rounds offer varying amounts of funding for your business depending on the funding needs of the business startup.

Type of funding can also come from government grants or small business innovation research. When looking to start a business and get funding, it's important to understand how series funding works. Pre-seed funding is often the first round, followed by series A round, series B round, and finally series C round. Each round offers more startup business funding to help fund your business and grow your business venture.

Considering Crowdfunding as a Viable Option

Depending on the size of your startup, looking for funding for a new business venture can be daunting, especially when traditional funding sources usually require a solid business history or large amounts of startup capital. However, crowdfunding offers a solution for new startups by allowing them to raise relatively small amounts of money from a large pool of investors.

This can be particularly beneficial at the series A funding stage, where many companies struggle to secure series B funding to grow the business. Crowdfunding can also be a viable option for businesses at the series C stage who may have trouble finding the funding to continue developing and expanding.

By offering funding in small amounts, crowdfunding platforms provide a source of funding that can help businesses at any growth stage. Whether you are a new startup or an established company looking for series C funding, grant funding, or business growth funding, crowdfunding may be the answer you are seeking.

Identifying Funding Sources for Your Startup

Securing business grants for startup growth.

Securing Business Grants for Startup Growth can be crucial in developing a business and obtaining the funding you need to expand. Different types of funding are available, ranging from business startup funding to Series A funding rounds. Targeting the types of investors that can provide funding at each stage of your young business's growth is important.

Starting with your first funding and progressing through Series D rounds, securing additional funding helps a U.S.-based startup reach its full potential. Exploring different funding sources and determining the amount needed to succeed can pave the way for your business's growth.

Utilizing Business Loans for Financial Backing

Utilizing business loans can provide much funding for a young business looking to get your startup. In the US, entrepreneurs have various options to secure financing through loans, allowing them to invest in their businesses and fuel growth.

Attracting Angel Investors to Support Your Venture

Attracting angel investors is crucial for the success of your venture. These individuals are typically high-net-worth individuals who provide financial backing for small businesses or start-ups in exchange for ownership equity. To catch their attention, you need a strong business plan and strategy demonstrating potential for high returns on investment.

Also, showcasing a talented and experienced team can attract angel investors looking for promising opportunities to invest in. Building relationships with these investors through networking events and pitching your venture effectively can increase your chances of securing their support.

Emphasizing your unique selling proposition and presenting a clear roadmap for growth can help differentiate your venture and make it more attractive to angel investors. Highlighting your business's market opportunity and potential scalability can also demonstrate the potential for significant returns on their investment.

Further Reading: It’s Time You Lean About Owner’s Equity

Creating a Strong Business Plan to Attract Investors

Understanding the importance of a comprehensive business plan.

Understanding the importance of a comprehensive business plan is crucial for the success of any organization. It serves as a roadmap, outlining goals, strategies, and financial projections. With a well-thought-out plan, businesses can effectively identify potential obstacles and opportunities, leading to informed decision-making and long-term sustainability.

By analyzing market trends, competition, and target audience demographics, businesses can tailor their strategies to meet the evolving needs of their customers. A detailed business plan also helps secure funding from investors or financial institutions, showcasing a commitment to strategic planning and responsible financial management.

Also, a comprehensive business plan provides a clear framework for measuring progress and evaluating performance. By regularly reviewing and updating the plan, businesses can adapt to changing market conditions and remain on track to achieve their strategic objectives.

Highlighting the Potential Return on Investment for Investors

When considering where to allocate their funds, investors always look for opportunities that offer a strong ROI. By carefully analyzing market trends, financial performance, and growth potential, savvy investors can identify assets that have the potential to provide significant returns.

Investing in promising ventures or industries can result in substantial profits over time, making a solid ROI a crucial factor in investment decision-making. Successful investors understand the importance of balancing risk and reward to maximize their returns while minimizing potential losses.

Whether investing in stocks, r eal estate , or startups, the potential for a high ROI is a key consideration for investors seeking to grow their wealth. By diversifying their portfolios and staying informed about market conditions, investors can increase their chances of achieving lucrative investment returns.

Exploring Venture Capital as a Funding Option

Partnering with venture capital firms for financial backing.

Partnering with venture capital firms can provide startups with the financial backing to fuel growth and scale their business operations. By securing investments from VC firms, companies can access valuable resources, strategic guidance, and industry expertise to help navigate the challenges of building a successful business.

Working with venture capitalists also opens doors to new networks and potential partnerships that can further accelerate growth and open up new expansion opportunities. Additionally, VC firms can provide valuable insights and mentorship to help startups avoid common pitfalls and make informed decisions that drive long-term success.

Navigating the Different Stages of Venture Capital Funding

Venture capital funding presents a complex journey, from seed funding to Series A, B, and C rounds. Startups must adeptly navigate each stage to secure vital funds for growth.

Early-stage startups often rely on angel investors or seed funding to launch. As they progress, they may attract venture capitalists for Series A funding to expand operations. Subsequent rounds like Series B and C further propel successful startups.

Understanding requirements and expectations at each stage is crucial. Entrepreneurs must craft solid business plans, demonstrate market traction, and showcase long-term growth potential to attract investors. Successfully navigating these stages leads to valuable partnerships and opportunities for startups to thrive.

Evaluating the Pros and Cons of Venture Capital Investment

When considering venture capital investment, weighing the benefits and drawbacks is important. On one hand, VC funding can provide financial support, industry connections, and guidance for growth. However, it also often comes with a loss of control, pressure to perform, and potential dilution of ownership.

Also, venture capital firms typically expect a high return on their investment, leading to increased scrutiny and demands for rapid growth. While this can be a catalyst for success, it also puts added stress on the company and its founders. It is crucial to carefully evaluate these factors before pursuing venture capital funding.

Finding Alternative Funding Options and Grants

Exploring small business administration grants for startups.

Small Business Administration grants offer vital financial aid to startups. Researching and applying for these grants can secure funding to cover initial costs and bolster success chances. Carefully reviewing eligibility and deadlines enhances funding prospects.

Innovative entrepreneurs with solid business plans stand a better chance of receiving SBA grants. These grants are invaluable for startups lacking traditional financing options. SBA's expertise and networking opportunities further fuel startup growth and success.

Applying for SBA grants demands attention to detail and dedication. Startups must provide thorough documentation and articulate clear plans for fund utilization. A strategic approach to the application process maximizes funding prospects.

Utilizing Small Business Loans for Initial Capital Investment

Small business loans can be a valuable resource for entrepreneurs looking to secure funding for their initial capital investment. These loans can help cover expenses such as equipment purchases, marketing campaigns, and hiring staff.

By carefully managing these funds, businesses can set themselves up for success in the early stages of development. It's important for entrepreneurs to carefully consider their financial needs and explore all available options before committing to a loan.

Exploring Business Development Grants and Opportunities

Exploring business development grants and opportunities can lead to significant growth and expansion for your company. By researching and applying for these grants, you can access funding to help launch new projects, expand your reach, or invest in innovation. These opportunities can provide the resources needed to take your business to the next level.

Utilizing Angel Investors to Fund Your Startup

Understanding the role of angel investors in startup funding.

Angel investors play a crucial role in startup funding by providing early-stage capital to entrepreneurs. They typically invest their own money in exchange for equity ownership in the company. Angel investors also often offer valuable advice, connections, and mentorship to help the startup succeed.

Unlike venture capitalists, angel investors are usually individuals rather than firms or institutions. They are willing to take higher risks in exchange for potentially higher returns. Angel investors are typically experienced entrepreneurs or industry professionals who can guide and support the startups they invest in.

Presenting Your Business Idea Effectively to Attract Angel Investors

When pitching your business idea to potential angel investors, conveying your vision, market opportunity, and growth potential is crucial. Use compelling visuals, data-driven insights, and a polished presentation to capture their interest and demonstrate the value of your business.

Highlight your unique selling proposition, competitive advantage, and revenue projections to show investors your business is innovative and profitable. Be prepared to answer questions and address their concerns, showcasing your expertise and commitment to success.

The key to attracting angel investors is to showcase your passion, confidence, and determination to succeed. Tailor your pitch to resonate with investors' values and goals, creating a compelling case for why they should invest in your business and be a part of your journey toward success.

Maximizing Crowdfunding for Startup Financing

Crafting compelling crowdfunding campaigns to garner support.

Crafting compelling crowdfunding campaigns is essential to garner support for your project. Start by clearly outlining your goals and objectives, and create a sense of urgency to inspire people to donate.

Use eye-catching visuals and persuasive storytelling techniques to engage your audience and stand out. Don't forget to show transparency and appreciation for your supporters to build trust and encourage continued support.

Engaging Your Network and Community for Crowdfunding Success

One of the most crucial aspects of a successful crowdfunding campaign is engaging with your network and community. By leveraging your existing relationships and reaching out to potential supporters, you can create a buzz around your project and attract more backers.

Utilize social media platforms and email newsletters to keep your community informed and excited about your campaign. Encourage them to share your fundraising page with their friends and family to expand your reach and increase donations.

Host events or webinars to bring your network together and showcase your project. This can help build excitement and momentum around your campaign, inspiring more people to contribute and support your cause.

Startup funding is the financial support entrepreneurs seek to establish and grow their businesses. It involves securing capital from sources like angel investors, venture capitalists, and government grants. Fundraising progresses through stages such as seed funding and Series rounds. Clear business plans and market traction are key to securing funding, which is essential for innovation and scaling operations.

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A $700M SAFE, IPOs are back and how one venture fund is transcending borders

Hello, and welcome to  Equity , a podcast about the business of startups, where we unpack the numbers and nuance behind the headlines. This is our Friday episode, in which we dig through the most critical stories from the week and chat through new and emerging themes.

Listen here or  wherever you get your podcasts .

This week we had Mary Ann, Becca and Alex aboard. Becca of course is one of the two hosts of TechCrunch’s Found podcast, which talks to founders about how they built what they did, and how they did it!

Today on Equity, however, here’s what we got into:

• Deals of the Week:  Mary Ann wanted to talk about Onyx , a neobank aimed at wealthy early-to-middle career adults. It’s pivoting to B2B and is not, despite what the Internet said, dead. Alex wanted to discuss Montauk Climate , a climate incubator set up by the former co-founder of Casper and the recent Marc Lore/Wonder deal . The climate isn’t doing well, in case you’ve missed the news. So, projects like this are welcome. And Becca brought Ethos Fund to the table , allowing us to discuss cross-border investing.
• The upcoming Saudi AI push :  What has lots of capital and is ready to pour it into AI investments? Sure, your local venture scene but also the Saudi Arabian government. Notable venture funds have been flying to the Middle Eastern state to raise capital, but perhaps in the future the capital will come for them.
• How some VCs are holding back an IPO rush : A recent Becca investigation unearthed an interesting finding, namely that it may not be the fault of late-stage founders that their companies are not going public. Their backers might actually be the ones holding the door closed.
• Oh, and Reddit started trading during our recording slot, and it’s doing well !

We are back Monday with more! Chat then!

For episode transcripts and more, head to  Equity’s Simplecast website .

Equity drops at 7 a.m. PT every Monday, Wednesday and Friday, so subscribe to us on  Apple Podcasts ,  Overcast ,  Spotify  and all the casts. TechCrunch also has a  great show on crypto , a  show that interviews founders and more!

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Saudi Arabia Plans $40 Billion Push Into Artificial Intelligence

The Middle Eastern country is creating a gigantic fund to invest in A.I. technology, potentially becoming the largest player in the hot market.

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By Maureen Farrell and Rob Copeland

The government of Saudi Arabia plans to create a fund of about $40 billion to invest in artificial intelligence, according to three people briefed on the plans — the latest sign of the gold rush toward a technology that has already begun reshaping how people live and work.

In recent weeks, representatives of Saudi Arabia’s Public Investment Fund have discussed a potential partnership with Andreessen Horowitz, one of Silicon Valley’s top venture capital firms, and other financiers, said the people, who were not authorized to speak publicly. They cautioned that the plans could still change.

The planned tech fund would make Saudi Arabia the world’s largest investor in artificial intelligence. It would also showcase the oil-rich nation’s global business ambitions as well as its efforts to diversify its economy and establish itself as a more influential player in geopolitics. The Middle Eastern nation is pursuing those goals through its sovereign wealth fund, which has assets of more than $900 billion.

Officials from the Saudi fund have discussed the role Andreessen Horowitz — already an active investor in A.I. and whose co-founder Ben Horowitz is friends with the fund’s governor — could play and how such a fund would work, the people said. The $40 billion target would dwarf the typical amounts raised by U.S. venture capital firms and would be eclipsed only by SoftBank, the Japanese conglomerate that has long been the world’s largest investor in start-ups.

The Saudi tech fund, which is being put together with the help of Wall Street banks, will be the latest potential entrant into a field already awash in cash. The global frenzy around artificial intelligence has pushed up the valuations of private and public companies as bullish investors race to find or build the next Nvidia or OpenAI. The start-up Anthropic, for instance, raised more than $7 billion in one year alone — a flood of money virtually unheard-of in the venture capital world.

The cost of funding A.I. projects is steep. Sam Altman, the chief executive of OpenAI, has reportedly sought a huge sum from the United Arab Emirates government to boost manufacturing of chips needed to power A.I. technology.

Saudi representatives have mentioned to potential partners that the country is looking to back an array of tech start-ups tied to artificial intelligence, including chip makers and the expensive, expansive data centers that are increasingly necessary to power the next generation of computing, according to four people with knowledge of those efforts, who were not authorized to speak publicly. It has even considered starting its own A.I. companies.

Two of the people said that Saudi’s new investment push is likely to take off in the second half of 2024. A $40 billion fund could make both the Saudi Arabian government and Andreessen Horowitz key players in races to corner various businesses related to the field.

Mr. Horowitz and Yasir al-Rumayyan, the governor of the Public Investment Fund, have discussed the possibility of the Silicon Valley firm setting up an office in the country’s capital, Riyadh, one person with knowledge of the conversations said.

Other venture capitalists may participate in the kingdom’s tech fund, two people briefed on the plans said.

Partly because of its enormous financial clout and growing ambitions, those in international business circles closely monitor moves made by the Public Investment Fund, which was created in 1971.

In 2018, just as Saudi Arabia was becoming a major destination for investment firms and entrepreneurs seeking financial backing, the country’s agents killed the dissident Saudi journalist Jamal Khashoggi in the kingdom’s Istanbul consulate, which for a spell seemed to damage the nation’s reputation among international financiers.

In 2022, the Saudi government invested billions into a firm run by former President Donald J. Trump’s son-in-law Jared Kushner, among others, which was seen by many as a political move. One of its recent deals to merge its LIV Golf upstart with the PGA Tour raised the ire of golfers, but the pact is also controversial in part because of Saudi Arabia’s human rights record.

Saudi Arabia, which poured $3.5 billion into Uber in 2016, has largely struggled with technology investing. It handed $45 billion to SoftBank for the Japanese firm’s $100 billion Vision fund, which was channeled into dozens of enterprises including the now-bankrupt real estate firm WeWork and other failed start-ups, such as the robotic pizza-making company Zume.

Many in Silicon Valley and on Wall Street have welcomed the nation back into the fold. During this year’s Super Bowl, Mr. Horowitz hosted Mr. al-Rumayyan, according to two people briefed on their activities.

The two men also spent time together before and after the game, the people said, with Mr. Horowitz giving Mr. al-Rumayyan tours of Las Vegas, his adopted city, and introducing the investor to his friends in music and sports.

Maureen Farrell writes about Wall Street, focusing on private equity, hedge funds and billionaires and how they influence the world of investing. More about Maureen Farrell

Rob Copeland is a finance reporter, writing about Wall Street and the banking industry. More about Rob Copeland

Explore Our Coverage of Artificial Intelligence

News  and Analysis

Gov. Bill Lee of Tennessee signed a bill  to prevent the use of A.I. to copy a performer’s voice. It is the first such measure in the United States.

French regulators said Google failed to notify news publishers  that it was using their articles to train its A.I. algorithms, part of a wider ruling against the company for its negotiating practices with media outlets.

Apple is in discussions with Google  about using Google’s generative A.I. model called Gemini for its next iPhone.

The Age of A.I.

By interacting with data about genes and cells, A.I. models have made some surprising discoveries and are learning what it means to be alive. What could they teach us someday ?

Covariant, a robotics start-up, is using the technology behind chatbots  to build robots that learn skills much like ChatGPT does.

When Google released Gemini, a new chatbot, the company quickly faced a backlash. The episode unleashed a fierce debate  about whether A.I. should be guided by social values.

A.I.’s booming growth is radically reshaping an already red-hot data center market, raising questions about whether these sites can be operated sustainably .

Few companies better illustrate how A.I. is changing Silicon Valley deal-making than Anthropic, one of the world’s hottest A.I. start-ups .

Saudi Arabia plans $40 bln push into artificial intelligence, NYT reports

The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here.

Reporting by Nilutpal Timsina in Bengaluru, Editing by William Maclean, Nia Williams and Alistair Bell

Our Standards: The Thomson Reuters Trust Principles. , opens new tab

US home flipping malaise pinches reality TV stars to contractors

While the increase in interest rates engineered by the Federal Reserve over the last two years put a damper on the overall U.S. housing market, it took a sledge hammer to home flippers from small contractors to reality TV stars.

Calls to scrap Victoria’s $2 billion Venture Capital fund 'Breakthrough Victoria' as state faces skyrocketing debt

A lack of transparency and concerns about the quality of investments in Victoria’s $2 billion investment fund have led to calls for it to be scrapped, with the state already in debt to the tune of $126 billion.

Breakthrough Victoria uses taxpayers' money to invest in start-ups and expanding businesses in the hope of making a commercial return. It's been described by industry observers as Australia's largest venture capital fund.

Epilepsy monitoring company Seer Medical was one of the fund's first investments and in July 2022 the company received $30 million of taxpayers' money.

7.30 can reveal Breakthrough Victoria invested another $4 million in the company on March 1 amid a funding crisis and mass staff lay-offs.

Breakthrough Victoria refused 7.30 requests for interview but in a statement said it's a "patient investor" and is "working with Seer on a number of measures designed to help them through this period".

The sole shareholder of Breakthrough Victoria is treasurer Tim Pallas. He declined 7.30's request for an interview but said in a statement he was "proud" of the fund and the work being done.

“Breakthrough Victoria is an independent company that is subject to the same rules and regulations that other companies are held to," the statement read.

"Its decisions are made independently of government, and are scientifically, technically and commercially assessed through a rigorous due diligence process.”

When 7.30 asked Assistant Treasurer Danny Pearson about the extra $4 million, he was unaware of the additional investment in Seer Medical made by Breakthrough Victoria.

"I don't know enough about it, that's really a matter for the treasurer," Mr Pearson said.

According to Manningham councillor and shareholder activist Stephen Mayne the lack of transparency is concerning for the Victorian public.

"There's not a lot of transparency about why that investment was made, that's one of the biggest bets that appears to have gone bad," Mr Mayne told 7.30.

"I would have thought that the chair should be out talking and the treasurer should be out talking.

"The fact that they've battened down the hatches and they're refusing to talk sends a message that ... it's not a pretty story and where there's smoke, there's fire."

'Shut it down'

High-profile Melbourne investor and co-founder of seek.com.au Matt Rockman says at a time when Victoria has record debt of $126 billion and growing, the Breakthrough Victoria fund should be scrapped.

"My recommendation would be for them to shut it down, repatriate the money back into the Victorian taxpayers' coffers, which is badly needed, and not try and play in a high risk, very specialised area like venture capital," he said.

When 7.30 asked Mr Pearson if the fund should be wound up he said: "These matters are for the treasurer, but I think John Brumby is doing an outstanding job and I think we've got to play to our strengths." 

The fund was the brainchild of the current chairman of Breakthrough Victoria, former Labor premier John Brumby, who originally proposed a $1 billion fund. 

At the height of COVID in 2020 there were record-low interest rates, so the Victorian government announced a bold new initiative that promised to create 15,700 jobs over 10 years. 

Mr Pallas told parliament at the time it was "an Australian first" that would "drive investment in research, innovation and commercial outcomes".

The fund would focus on priority sectors such as health, agriculture, food and clean energy, and would attract the best and brightest from around the world.  

Mr Mayne says the fund is reminiscent of the Victorian Economic Development Corporation set up by Labor in the 1980s.

"It was a massive scandal because they lost just over $100 million picking winners or picking losers," he said.

"So it is surprising that they would return to that same concept, when there are so many other investing entities in Melbourne, and the state's also got a massive debt," he said.

Lack of transparency

In the last three years Breakthrough Victoria says it has committed $300 million in 22 companies, one fund, one grant and six University Innovation Platforms.

Only 17 of the companies are listed on Breakthrough's website and not all investment amounts have been disclosed.

But despite the fund spending public money, it is exempt from Freedom of Information requests.

Stephen Mayne is concerned there is a lack of transparency.

"The government might claim it's commercial negotiations with founders, but that's why it's so fraught, because it's a very specialist area," he said.

"You're spending taxpayers' money. If you have to do it in a way where it's got to be secretive and you don't have the normal scrutiny of FOI or transparency with details of your actual specific investments, I don't think the government should be in that space."

The opposition has referred Breakthrough Victoria to the auditor-general after becoming frustrated by the lack of transparency surrounding public money.

"I think there's serious questions to be answered," said Shadow Minister for Innovation Bridget Vallance.

"What return on investment they are getting, what value for money is this for taxpayers? What benefit is it bringing to the Victorian economy?"

Unlike private funds, Breakthrough Victoria doesn't declare the structure of individual investments, company valuations or when it will deliver a return on taxpayers' money.

According to its annual report its only KPI is to invest in a set number of companies each year.

Questions about staff suitability

Jessy Wu runs a private venture capital fund and says the Victorian taxpayer is entitled to more information.

"I think that all Victorian taxpayers are limited partners, that means [they are] invested in Breakthrough Victoria," she said.

"I certainly hope they can get the same kind of transparency and insight from the VC fund that's investing their future."

Breakthrough Victoria appears to be dealing with an internal upheaval after three of its directors have called it quits and Mr Rockman questions whether the fund has the expertise needed to pick winners. 

"It looks stacked with academics and bureaucrats and sort of ex-government officials," he said.

"And if you look at the broader marketplace of venture funds in this country, and overseas, America is probably the lead market that created the venture capital industry. That's not the type of talent these firms attract."

Breakthrough Victoria said via a statement the departure of board members was routine.

"The departing board members are moving on, either because they have come to the end of their term or have decided to explore other opportunities after helping establish Breakthrough Victoria," a government spokesperson said.

There are also questions about staffing levels at the fund. 

According to Breakthrough Victoria's latest annual report, it has 52 staff including former political staffers and public servants — at a cost of $9.9 million last financial year.  

Another $1.5 million was spent on consultants. 

Breakthrough Victoria CEO Grant Dooley, is on a salary of $500,000 per year. A salary greater than the Victorian premier.

"You've got to question the size of the cost base, the salaries being paid and the size of the team," Mr Rockman said.

"On the numbers, we can see it seems to be very, very cost heavy for a fund of that size."

Ms Wu says private venture capital funds like hers run a much leaner and hungrier operation, with just three full-time staff.

"I read in the annual report that Breakthrough Victoria had made eight investments over the last 12 months. We have made 28 investments in the last three years or so."

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