The way that Venture Capital (VC) firms invest ensures that only a certain type of business would work for them to invest in. The theory goes like this, most VC investments fail, but the ones that do succeed cover the expenses of the failures and offer a healthy return. To use the boxing analogy VCs throw haymakers. Most businesses do not need the potential to generate the degree of return required for the VC investment methodology. As a primary time entrepreneur, you will need to begin slow and build from underneath up. Initially seeking VC funding is just a bad idea in many cases. The chances of a respected VC firm investing in a team of first time entrepreneurs are very slim.
A better idea is to produce your company and seek a Business Angel if you need additional funding. The best Business Angel will really enhance your business. The Business Angel will soon be invaluable in increasing your revenues, and hence, improving your chances that you will create a profitable exit. If your company does require further VC funding to scale, then having an effective Business Angel in your team is crucial.
It’s important to remember that the process to getting VC funding is expensive (for bootstrap entrepreneurs like us). You will need to purchase due diligence along with other legal and accounting fees. To place this in context, if you should be smart, you will need to get personal legal services which can be separate to the legal services for your company and you will need to purchase both Top Venture Capital firms. On top of this, you are at an important disadvantage when undertaking negotiations with VCs. They do this all the time, and you are only going right on through this method for the initial time. Having a skilled Business Angel leading your side in the negotiations will greatly enhance your position.
Traction is the currency of private equity investment, both on Business Angel and VC levels. Accumulating traction is definitely an excellent idea. Consequently, you will need not fret with VC or Business Angel funding provided that you are pursuing traction with your entire might. View it like this, investors look at your company as a money machine. It’s up to you to function as engineer who builds that money machine. The more traction you have the greater your negotiating position.
Getting funding shouldn’t be the key focus of your business. Making a profit should be. Should you choose this, then any funding to help you scale can come naturally. However, it’s difficult to bootstrap a business to the investment ready stage. These top 10 techniques for business start-ups may help you along the way. It’s lots of work but if you persist you might find the benefits and reap the rewards.