Venture capitalists usually specialize in industries such as computer, biotechnology and the communications industries such as high technology companies including software, biotechnology, medical devices, media and entertainment, wireless communications, Internet, and networking startups. In the last five years, there is a big commitment from VC firms towards clean technology startups which include renewable energy, environmental and sustainability technologies and power management.
As technology progresses VC firms can benefit on the growth of a great startup company, and the company can get funding needed with the support from VC firms. This creates a win/win solution for each because many companies in the technology industry need more funding then most business loans provide. A few examples of companies that got their start from Venture Capital funding are Digital Equipment Corporation, Apple Inc., Genentech. These companies received funding as far back as the 1980’s. Knowing this, Venture Capital is nothing new and here to stay.
Technology companies looking for venture capital typically can look toward the same steps to achieve maximum results in a VC approval. To start, you must submit a business plan. The business plan must be concise and answer any questions that may be asked of those reviewing your plan. The venture funders will review an entrepreneur’s business plan, and then collaborates with the business, if the business meets the needed criteria for the VC firm to approve funding. If the venture fund is interested the will look into the business plan with more detail. The detail looked for is, in great detail, the company’s management team, market, products and services, operating history, documents, and financial statements. Once this step is completed the term sheet comes about. A term sheet describes the terms and conditions for an investment.
Once due diligence and the terms sheet is completed, the investment is made in the company in exchange for some of the startups equity. Often times, not only is equity given to the VC firm, but many VC firms want to be part of the board in exchange. Being board member of the startup allows the VC firms to be part of later decision making, which protects their investment over time.
It is important to understand that when being invested in by a VC firm, money is received in spurts. Many venture funds normally invest in spurts as the company meets previously-agreed goals and milestones. As these milestones are completed, more financing is made available by the VC firm. Through time many adjustments in dollar amount are made. As changes occur through growth the agreement may need altering. Even though VC companies stay involved much longer than most financing companies, they create an exit plan, on average, four to six years after an initial investment is made the exit plan is completed. This is generally how VC firms make their money. Exits are normally performed through company mergers, acquisitions, and Initial Public Offerings.
With this information, you know what to expect. Seeking expert advice is very important. Business leader, Efraim Landa can help dictate if VC funding is right for you and introduce you to VC firms that your startup may qualify for.