Venture Capital Funding
Accessing capital via venture capital funding has turn out to be almost an art type. There are little players that finance up to $500,000 and bigger players that finance up to $25,000,000 or much more. There are business particular firms and there are firms that focus on a particular region, country or continent.
Even though you want to get in touch with as many possible investors as feasible, it is good practice to do your research and preparation first, then get in touch with many potential investors. No sense sending your business plan or executive summary to firms that only fund $5,000,000 or much more if you are only looking to raise $1,000,000. Likewise, it doesn't make sense to send an executive summary and then spend hours or beneficial time making adhere to-up calls to venture capital firms that only fund technology or biotech companies if your company is in the retail business.
More than the years, the terms "venture capital" and "private equity" have become blurred and intertwined. My suspicion is that venture capitalists got tagged with the nickname "vulture capitalists" and decided to begin utilizing the much less offensive name, "private equity investor". After all, who would you rather get funded by a vulture capital firm or a private equity firm.
I believe an easier distinction, nevertheless, is that venture capital more often relates to funding provided to start-up businesses or very young companies, whereas private equity refers more to funding provided to much more established businesses or companies in a growth stage or looking for mergers and acquisitions.
Venture capital funding, when applied to these start-up or young companies is consequently very costly because the company most likely has extremely little income if any and most likely needs the financing to survive. If that is the situation, of course the investor is going to dictate some extremely demanding terms and need a large piece of equity in your company simply because of the higher dangers involved. Looking at the scenario from another point of view, if your company is in no position to bargain and survival depends on that financing, then you would be foolish not to take the financing. Management should try to steer clear of the situation by raising capital well in advance of when it will be required. Keep in mind that when it comes to raising funding for a company it usually take much longer to raise than anticipated.
There are some issues you can do to permit your management team to recapture some of its equity, such as a claw back. This allows you to purchase back a small portion of the equity they investor bought if management is able to hit particular milestones in terms of gross or net revenues.
