What are the needs of investors particularly venture capitalists from a new business venture?

For the entrepreneur looking for finance for their fledgling business there are a lot of different options available, from self-funding, and angel investments to grants and even venture capital funding.

Table of Contents Show

What is Venture Capital Funding?
How Venture Capital Helps Entrepreneurs
Limitations of Venture Capital Funding
How the Angel Investment Network Helps
1. Investors want to see the executive summary
2. Management
3. Investors want to see your financials

The financial landscape can be quite confusing for the brand new business owner but understanding what how VC investors operate and provide VC investments is fairly straight forward. So this begs the question whether venture capital funding is suitable for your own business?

What is Venture Capital Funding?

Venture capital firms are portfolio companies that invest in a number of different businesses at any given time. Some venture capital firms will work within a particular sector or business ecosystem, whilst others, will have a more diverse portfolio and provide investment capital to a many different business types.

For example, you might find that a venture capital firm will provide fundraising for firms that work in the healthcare, crypto, robotics, fintech or high-growth technology companies. There are venture capital companies that have been created specifically to target emerging companies that target these sectors.

You can even find venture capital firms that specialize in the people they invest in, so for example there are women-led venture capital companies. So whether you're a tech-business in Silicon Valley, near San Francisco or an emerging company in Mumbai, if your proposition has great growth potential you'll find a venture capital firm that is interested in your business.

How Venture Capital Helps Entrepreneurs

Venture capitalists can invest anywhere up to the billions, expecting a return of up to 30% over a five to ten year period. At the earliest stage of investment, this funding is called seed capital, covering initial marketing, developing and manufacturing expenses.

After several years, even if the business has not yet turned a profit, the company can seek working capital to further expand its line of products, operations, inventories and technologies. When the company or firm has matured, bridge financing allows the company to go public and investors can restructure stockholder positions and possibly leave their agreement (also known as an “exit strategy”).

When one company provides the capital investment to a different company, this is known as corporate venture.

To take your business to the next level with VC company you can expect a lot of meetings between management teams and individuals like the CFO and general partners.

Limitations of Venture Capital Funding

When it comes to finding investment for your early-stage start-up business, where do you begin? Although many entrepreneurs might consider looking for venture capital investment, often these kind of investors are looking for a business with a relatively high valuation, that has made inroads and needs investment to take the business to the next level.

For entrepreneurs with a start-up or small business that are looking for early-stage investment then VC investors might not be the right fit, instead private investors may be more interested in the business proposition.

The reason for this is fairly straight forward. The venture capitalist investors normally look for established businesses that are looking to grow larger, perhaps to help it reach the point of the Initial Private Offering (IPO). Once a company has reached IPO then you can expect larger investors such as pension funds to start investing in an organization.

On the other hand, in comparison, private investors are typically less risk adverse and look for big returns on their investments. In some cases, you might find a VC firm backing an individual if they have a solid track record of entrepreneurship, but this isn't as common as them making VC funding investments into larger, more established organizations.

With potentially high returns, the risk often increases, and no more so than with start-up businesses. This often does not deter the angel investor, but venture capital investors like those found on Wall Street are less enthused by these kinds of prospects.

To get angel investment for a new business you will need to ensure that your business plan is comprehensive, as the investors will need to do their due diligence before they invest in the business prospect.

How the Angel Investment Network Helps

Members of the Angel Investment Network can connect with potential angel investors and generate venture capital for their business.

Private equity investors are looking for start-up businesses that they can invest in. So if you have a new venture that you are looking to get off the ground, then by signing up to the Angel Investment network you can find a partner who can help secure your future and provide the investment needed to take your idea or early-stage company to the next level.

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If you want to get funding for your start-up idea, you should know what investors look for in a business plan. You need to show them how you’re going to make a profit. Or in other words, how are you going to bring in the money.

Venture capitalists screen business plans. That’s what they do. The business plans are coming in at them every day, and they’re the ones that have to make a decision. They either arrange a meeting with you or say politely that your business idea is not good enough.

You need to understand that 99% of the business plans that venture capitalists receive are declined.

These are the things that get the most attention from venture capitalists during the business plan evaluation process:

1. Investors want to see the executive summary

The executive summary of your business plan is the first thing that the investors look at. Nobody has the time to read a 50 or 60-page business plan novel. Venture capitalists want to see those 3 to 4 pages at the start. These pages help them to get a grasp of what are you planning to do with your business.

If investors can’t see the opportunity here and if they can’t understand what your business is about immediately, your business plan will end up in the bin.

An investor can’t know your business better than you. That’s why your business plan, and especially the executive summary needs to be clear and concise. It should be clear in a way that even your grandmother could understand it. That’s how venture capitalists will recognize the opportunity that you’re offering to them.

2. Management

The other thing that investors look at is the team, more specifically, your management team. Yes, the idea itself is of huge importance. But even more important is the team that is going to carry out the idea to accomplishment.

Venture capitalists see dozens of companies daily that are pitching the same or similar business idea. But the question remains which is the best team one that is going to execute that idea and bring the results?

You have to have a team of experts that know their job and this has to be showcased in your business plan too. That’s how investors see what you’re talking about. As a start-up, it’s understandable that your team might still not have the experience to add up to their expertise. For that reason, at this point, it is recommended to get some help and advice on how to present the management team.

At the end, it’s all about the team. Make sure you pick the right team. If you have credibility and you trust your teammates, you’ll gain credibility with the investors and they will trust you too.

3. Investors want to see your financials

If venture capitalists love the executive summary and your team, they’re moving on to the part that most interests them, financials. They want to see numbers. Not just numbers, but numbers that make sense. After all, they want to see how they’re going to make their money.

This is not the romantic section. Also, this is not the big dreams section either. You’re not going to be the next Google in two years so leave your thoughts in your brain for this one. You have to be careful whether the amount of funding that you’re asking for can bring them a profit, as well as salary for you and your team.

How you’re going to use the money has to have logic. Investors have to see some return. Angel investors, for example normally expect around 30% in return every year. They want to see the value of your business, even the perceived value in the future if another company wants to purchase your start-up.

Conclusion

So an executive summary, good team and management, and firm financial projections will reassure investors to pick your idea for funding. These are the things that every investor is going to look at when evaluating your business plan. There’s no other way around it. Even if you’re friends with a venture capitalist and he does you a favor by scanning the plan, if you fail with the executive summary, your plan goes straight to the bin without any emotions whatsoever.

Having a business plan is important because it will help you set realistic goals for your start-up. It will also serve as an excellent tool to secure investor funding and to establish the financial forecasts for your business and Return on Investment (ROI).

To be considered as a strong candidate for receiving investment funds, you must prove that you thoroughly understand every aspect of your business. And you must prove that you know how to create a profit from it.

As a first-time entrepreneur that has a great new idea, we advise you to not jump into business waters without a plan. There are important questions that need to be answered first before you even start the company. The BizzBee team of experts is here for you to help you answer all those questions. We are here to guide you through the process of successful business planning.

This article was originally published on BizzBee Blog.