Venture Capital Funding
VC funds are primarily interested in funding established companies that are poised for rapid growth. But is it possible to obtain VC funds for a SMB startup?
Venture capitalists thrive on risk and return.
They grudgingly accept the fact that many of their investments will never yield a profit. Conversely, when an investment does earn a profit, they expect it to payoff. Big-time.
Although VC funds are comfortable embracing risk, they are also interested in mitigating risk as much as possible. In the real world, that often means avoiding startup SMBs and focusing on early stage companies that are off the ground and well on their way to success.
Do VC funds ever get involved with startups? Sometimes. But the criteria for funding startups are even more exclusive than the criteria for funding established companies that are positioned for growth.
What VC Funds Want to See in a Startup Business
Like any investments, VC funds are looking for startups that have real potential for big rewards. Startups that demonstrate the potential for steady growth over the long-term aren't likely to attract the attention of VC funds because it will take too long for them to achieve their desired ROI. Instead, they prefer startups that can yield large equity gains in a very short period of time.
So the kinds of startups that appeal to VC funds are usually ones that feature proprietary technologies or business processes. In these startups, there is potential for a quick acquisition capable of yielding substantial profits for both the business owner and the venture capital firm.
Tips for Securing VC Funds for Your SMB Startup
- Be realistic. You won't gain anything by telling VC funders what they want to hear. Most VCs have been around the block and can spot rosy optimism a mile away. Be realistic about your startup's strategy objectives and growth potential.
- Find partners. VCs rarely fund startups that seem to appear out of nowhere. If you're new to the industry, recruit a partner(s) who has a reputation in the field and can bolster the value of your proprietary assets.
- Develop a Plan B. The odds of securing VC funds for your startup increase if you have a viable Plan B funding strategy. If you have a truly valuable business concept and don't need VC funds to launch, the dynamic can shift to a scenario in which the venture capital firm needs to work to convince you to participate in an investment relationship -- rather than the other way around.
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