Not every entrepreneur who seeks venture capital should.  Many entrepreneurs starting or running a small business believe that the only source of funding they should seek is through a venture capital firm. 

 

However, what entrepreneurs must keep in mind is that VC firms are not banks.  If you need only a small amount of capital, say under $1 million, your best bet is contacting your local corner bank and getting a SBA backed small business loan.  If you’re after VC, then both your capital needs and growth plan should be big.

 

VC firms are typically in business to help startup companies with big growth potential get the capital and support they need to make it successfully on the market.  VC firms may finance as little as $500,000 and upwards of $10 million or more in a company.  However, for that price, they want their money back plus interest – and more.

 

VC Firms and ROI

 

A typical arrangement for a VC firm is to gain an ownership stake in a company in which they invest.  Depending on the amount of money invested and the total company worth, a VC firm may get a majority share in a company with full controlling rights.  But whether they are a minor or majority shareholder or owner, their intention is to relinquish their ownership stake and “cash out” at exit. 

 

Usually an exit strategy occurs at the time the company goes public with an IPO.  The VC firm exchanges their ownership stake for shares in the firm.  If the public shares take off and gain exceptional value, then the VC firm has gained a considerable ROI, which can be a staggering eight or nine figure dollar amount.

 

Big Ideas

 

However, to get such a large ROI, an invested company needs to be reaching for the sky at the time the VC firm invests.  The company must have realistic dreams of grandeur – one that must also be in high demand.  For example, a big business idea that attracts a VC firm might be a health technology product that will be needed in millions of health care facilities around the country or around the world. 

 

An idea doesn’t need to be an expensive product, but one that will sell to a wide market arena, resulting in large sales figures.  If you have an inexpensive product idea, be prepared to expand your business to access that larger market.

 

Big Expansion

 

A business may need capital not to develop a business idea, but to take their product or service from regional sales to a national or international level.  Capital is needed to make a big marketing push, as well as to expand production to meet the new demand. 

 

If you are currently vying for VC attention and funding, have a big plan in place.  Have a strategy to multiply your sales rather than small incremental percentages.  With the help of VC funding, however, you can take your business to the highest level.

 

 

 

 

Tags: angel investors, Find funding, find venture capital, startup funding, venture capital

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