Roles of Venture Capital Firms in Startup Businesses
Venture capital firms are notorious about choosing only select candidates for their funding. Out of hundreds or even thousands of potential candidates, only a few are selected as investment opportunities. However, not only do venture capital firms offer money to help a new business get up to speed and meet their full potential, but they are also there to act in an advisory capacity as well.
So what other roles to venture capital firms play in a developing business? Here are just a few.
General Business Strategy Advice
Venture capital firms are in the business of helping other businesses succeed. In doing so, they have acquired a great deal of experience and wisdom along the way.
Do not expect a VC firm to hang back and be a “silent partner.” Instead, expect a venture capital firm to offer plenty of advice in how a business should proceed with their strategies and offer new strategies in addition.
Develop a Financing Plan
Obtaining venture capital is similar to getting a loan. While banks and other types of investors will usually set up a regular payment plan and expect a business to stick to it, venture capital will clearly outline how they expect to be repaid for their monetary contribution.
It is traditional to expect that venture capital firms may not expect any type of repayment right away. However, instead expect them to become equitable owners in the company, and design their “exit plan” with certain amount of preferred shares for an IPO, for instance.
Refine the Business Plan
A business seeking venture capital will get nowhere without a business plan. But once a venture capital firm decides to back a new business, they will likely offer advice on how a business plan can improve and be refined even more.
Marketing Advice and Strategies
A new business may have a super star lineup in their management team. However, there is always additional benefit from venture capital firms with national and even international marketing savvy. Expect that a venture capital firm will provide valuable marketing strategies for newer businesses and products.
New businesses are likely to fail. Even a large percentage of venture capital backed businesses will fail. Venture capital firms are accustomed to this risk and can also provide additional and valuable advice and plans for contingencies when a business does not come together as planned.
New businesses trying to get a foothold in their industry can do extremely well with venture capital. However, financing is only a small portion of the role venture capital firms play. If you secure VC funding, expect an experienced venture capital firm to become a valuable, active business partner in your new endeavor.