Many entrepreneurs want to start a new business and think that venture capital funding is the only way to get the capital needed.  Why?  Simply because the term “venture capital” is tossed around so frequently.  It is associated with capital for new companies.  The thought is, “if you’re venturing out on a new business, venture capital financing is the way to go.”

Although this is partially true, there is much more involved with obtaining startup financing from venture capital firms.  Entrepreneurs must know that VC firms have specific guidelines for their portfolio investment companies, and many of those guidelines are universal.  If you are wondering whether your start up business is a good candidate for VC funding, here are a few good ways to know:

You’ll Be Serving a Large Market

You may have heard the term, “find your niche.”  Niche businesses are those that find a particular market or customer segment and fill a need that is not already there.  Unfortunately for these types of businesses, they may be successful as a niche business, but not a good candidate for VC funding.  Why?  They simply will not pull the revenue numbers expected of a VC funded business. 

Successful niche companies are sure to earn millions.  However, VC funded start ups are expected to eventually earn billions.  Thus, if you want VC start up funding, your new business must serve the needs of the masses.

You Need a Large Amount of Capital

Many new startup companies need only a relatively small amount of financing to get off the ground.  A few hundred thousand dollars or even a million or two will do the job adequately.  Unfortunately, venture capital firms are more interested in investments that require millions, and sometimes tens of millions, in capital needs.  A $500,000 investment simply will not give the VC firm the return it requires.

You Need Many Rounds of Financing

VC firms are looking to invest in startup companies from the ground up, which means potentially many rounds of financing.  For instance, a startup company may require seed financing and then many subsequent stages of funding until the business is ready to even introduce a product to market.  If your company does not need heavy market analysis, product development, and market testing, you may not be a good candidate for VC funding.

Entrepreneurs need to know where the best places to look for startup capital.  If you are a wise entrepreneur, you will carefully evaluate your new business to see if it is a good fit for VC funding.  If not, you would be best to focus your efforts on other sources.

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

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