Is Your Startup Ready For Venture Capital?
There comes a point in the life of most small businesses when outside funding is needed to grow. While there are multiple funding options for small businesses, some are best suited for particular stages of growth. If you’re looking to get your business funded through venture capital, there’s a lot of leg work that must happen before you’re ready to pitch to potential investors. Venture capital is financing that is typically given to early-stage companies that have the potential to grow and scale quickly. It is provided by venture capital firms or funds.
While venture capital isn’t the only source of funding for your business, it’s a great avenue for startup companies that often don’t have sufficient revenue or credit to secure a traditional bank loan. It would be very hard to get a traditional business loan without customers or a finished product with a proven market fit. Venture capitalists invest in companies that don’t have a finished product to sell. So how do you know if your startup is ready for venture capital? Ask yourself these questions:
Do you have a product?
While it’s possible to get funding without a finished product (think incubators or accelerators), most investors will want to see a minimally viable product. It’s still possible to get investment funding in the idea stage of your business but you must be able to demonstrate that your idea is solid and have a detailed execution plan. If you haven’t reached that far in your planning, your business likely isn’t ready for venture capital investment.
Do you understand your market?
When I ask new businesses to describe their audience, I often get the response “my audience is everyone.” If you describe your audience as everyone, you likely aren’t ready for venture capital. Marketing to “everyone” is the surest way to fail. The more specific you are about your audience, the better chance you will have to create marketing that entices them. Customers don’t want to feel like one in a million. They want to feel like you’re speaking directly to them and that your product can solve their problem. Before a venture capitalist invests they will want to see that you have a superior understanding of your audience and that you’re able to establish product-market fit.
How much do you need?
If you don’t know how much money you need or the specifics of how you plan to use that money, then you’re not ready for venture capital investment. The specific terms of the investment, including how much money you need and what you plan to spend it on, will be a crucial part of any conversation with an investor.
Are you ready to share control of your company?
Venture capital investment comes at the expense of giving away equity in your company to the investor. That also means your investors have a vote in major business decisions. This will create the risk of having a difference over strategy or core company values with your investor. If you’re not ready to share decision-making control with investors, then you aren’t ready for venture capital investment.
Do you have a pitch deck?
A pitch deck is a presentation created for investors that gives them an overview of why your business would be a great investment. It’s not meant to cover every facet of your business in great detail, but it should contain just enough to hook a potential investor so they’ll take a meeting with you. It’s supposed to be convincing and to show that you have a good understanding of your customers, finances, and operations – now and in the future. A top-notch pitch deck is an important part of the venture capital process.
There are a lot of factors to consider in accepting venture capital investment in your business. It’s a huge decision and it can be tricky knowing if it’s the right direction for your business. Many companies take the alternative route of bootstrapping to avoid all the strings that come with venture capital investment. However, if you have reached the pinnacle of what you can accomplish on your own, venture capital may be just what your business needs to reach the next level of success.