When raising money, think like a venture capital. For many entrepreneurs, success begins with a great idea. However, how do you get this idea off the ground? Raising money is needed for your company, but how do you attract investors?
Many young, emerging growth companies, understand that venture capital serves as an alternative. Often, venture capital provides cash funding in raising money, which is exchanged for shares in the business and an active role in the enterprise’s future.
In January the National Venture Capital Association, one of the trade associations representing the U.S. venture capital industry announced the results of its industry paper, MoneyTree Report, on venture funding for fiscal year 2012. The Association with PriceWaterhouseCoopers reported that venture capitalists invested about $26.5 billion in 3,698 deals last year. The report showed declines in both dollar and deal transactions down about 10% and 6%, respectively, from 2011. Fiscal year 2012 was the first drop off in venture capital activities in three years.
Economic uncertainty hindered the growth in new investments. As a result, many venture capital funds shrunk during the year. Venture capital firms have increased fund reserves to support funding of current investments and have become more discriminating in assessing new deals.
Understand that before a venture capitalist takes on higher risk the firm will determine the upside pay off. What this means is that the entrepreneur must do his or her homework to meet the expectations of the venture capital firm in raising money. This is a two-way street.
Venture capital funding comes with a price. Some of the considerations the venture capital firm will review in raising money when assessing a potential investment include:
Venture capitalist want to mitigate or manage their risk. Entrepreneurs, on the other hand, can assemble a strong management team, provide a well-written business plan, and show a leadership team that can execute the plan in raising money.
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