Like any other form of financing, venture capital investment is a long drawn process. It involves a lot of negotiations, calculations and projections. For the entrepreneurs, the process may be tiresome and this calls for patience and endurance. Venture capital investors take their time in trying to understand the business model in order to make the financing decision. In this article, read about the key activities and steps in venture capital investment.
Getting the Start-up Noticed
The first step is having the business getting noticed by venture capitalists. This takes many forms such as the startup founder approaching venture capital investors or the latter getting to know about the start-up through friends, intermediaries and the media.
Scrutiny of the Business
In this stage, the venture capitalist will want more information about the business. To do this, they will need a brief summary of the business with details such as business model, management and financial status and projection. This is the first point of contact between the entrepreneur and the investors.
The founders need to give as much effort as possible at this stage as it will be key in raising the interest of the investors. If interested, they may seek a deeper understanding through a face to face interview. They will then make the decision on whether to fund or not.
At this stage, the investors enter into a negotiation with the founders on the modalities of funding the business. Issues discussed include the amount to be injected, shareholding structure, management of the business and the exit strategy.
Venture capital investors get into a deal with a clear business plan. After the funds are released and the business achieving certain milestones, the investors sell their stake in the business. The exit strategy could take various forms such as through an initial public offer in the securities market or acquisition by other individual or corporate investors.