How Can a Startup in the US Raise Venture Capital?
When a startup begins to grow, raising funds becomes the next big challenge. While there are several ways to raise funds, venture capital is the best approach to accelerate the growth of your startup and gain access to industry recognition and guidance.
The process of raising funds through venture capital can be a strenuous process. It sometimes takes about six months to secure funding from a venture capitalist.
While there are financial advisors who can take over the responsibilities of securing potential funding, as a founder, it is essential to understand the process of raising venture capital and realize the elements involved to make informed decisions.
If you are beginning your hunt for a venture capital funding opportunity, here is a comprehensive guide to help ease the process.
Getting Started on Raising Venture Capital
A startup company with high growth and risk can reach for venture capital (VC) funding. Here’s what you need to begin your hunt.
1. Estimate the Company’s Worth
Investors will want to know how much your company is worth and what they can get in return when they invest in it. Hence, having a draft of your company’s valuation and the potential returns for investors is a good start. The company’s valuation can be made by a professional appraiser.
Factors that play a role in determining the company’s valuation are the company’s age and growth rate, the experience of the senior management team, revenues and cash flow, involved patents or other intellectual property, number of users or existing customers, etc.
Founders can also show ROI with financial projections and other figures that add to the value of the company.
2. Evaluate the Funds Required
A critical figure for your company’s long-term success is the amount of funding you are looking to seed from a VC. VCs want to make maximum ROI. It also means that the more they invest, the more you will be giving to investors.
The best way to go about this is by establishing the funds needed to get you through the immediate ventures and goals for your company. These figures will become more apparent when you complete your financial projections.
3. Connect with a VC Firm
Referrals from financial professionals, banks, lawyers, CPAs, and financial advisors are all sources that can navigate you towards a potential VC. Additionally, networking can go a long way for a startup founder. Attending private equity conferences and industry events can be a great arena for networking and connecting with VCs. Ensure that you are prepared with a pitch while attending one to make the best use of the opportunities.
4. Prepare a Solid Pitch for the VC Meet
Speaking of pitches, venture capitalists are approached by several other founders at events, meets, or conferences. They also receive a plethora of pitches at their firms through emails and other sources. It is important to build a pitch that is irresistible to VCs, emphasizing the worth and uniqueness of the investment.
Keep the pitch short and precise, as most VCs spend as little as 3 minutes going through the pitch. Ensure to add the necessary data and elements that reinstate the visions of your company and its capabilities.
5. What Goes into a VC Deal?
Apart from the goals for your company and its potential success in the market, investors are also interested in their ROI from signing the deal. For example, an investor can be looking for a percent of an ownership position in exchange for their investment. They will also consider the repercussions in case the company faces a downside or will look to maximize their ROI when the company’s value rises.
As a founder, you have the power to determine the investor’s share of equity or ownership position, which must be taken into account before signing the deal.
6. How Much Ownership Goes to the VC?
Handing over ownership percentage is more or less straightforward in a sole proprietorship. However, if your startup has more than one founder and other technical experts, the equity can be shared among them. This ultimately leaves very little to offer to the venture capitalists.
Sometimes, funding can occur in phases or in several rounds. You might consider saving some equity to use in successive funding rounds. Some experts suggest that the founding team must keep 25% of the shares and use the remaining 75% for the VCs.
Scale your Startup with trica equity
In conclusion, these guidelines should help you raise venture capital to fund your business. The process is challenging, but with enough planning, it can be a walk in the park.
You will be in a more practical position with trica equity to better understand your startup’s capabilities, make the appropriate connections, and understand the funding process.
Reach out to us for more details on equity management, fundraising, valuation, and more.