If you own a start-up and would like to further expand it, then you might have already heard of venture capital financing. This is a financing method suitable for small businesses and start-ups that have the potential to grow in the long term. There are many of these firms around, such as Clean Venture Fund, which focuses more on the laundry industry.

For those who are new to this financing method, it might leave you wondering what it is and if it’s suitable for your business. Read on to find out!

What is Venture Capital Financing?

Venture capital is provided by funding investors, or venture capitalists, to support a start-up or small company as it plans to expand. They also provide the capital required for promising start-ups.

These investors are willing to invest in these small and starting companies when they see the excellent potential return of investment if the company finds success.

Why is it Beneficial?

Venture capital is important for these reasons:

  • This type of capital is suitable for businesses that have no access to capital markets
  • It’s great for start-up companies as the capital will be used for support, without obligation for repayment. Furthermore, you receive more support in terms of managerial advice, consultations, decision-making, and the like
  • Venture capital fills gaps between traditional capital and innovation funds

Venture capital firms would invest around $7 million in start-ups and small companies on average, though this amount may increase or decrease, depending on how much the start-up needs and the potential return of investment, among other factors.

When to Use Venture Capital

It’s best to choose venture capital if ever you already invested funds into your company but still require finances, or if you have already reached the maximum from innovation funds.

When to NOT Use Venture Capital

Venture capital is not for everyone. If you haven’t invested money into your company or explored other sources of innovation funding, then it’s best to do this before choosing to apply for venture capital.

Take note that investors will have a share of your company, thus being involved in making the company’s decisions. If you want control over your company and to make the decisions yourself with your team, then this financing option may not be for you.

Finding Venture Capital

Here are some quick steps and tips to follow to raise venture capital for the business:

  • Contact all the venture capitalists from your network, as they are good connections.
  • Research for venture capitalists and firms you are interested in pitching your business plan to. It’s important to find a firm or investor that aligns with your goals and values
  • Be yourself while you are pitching your start-up or plans for expansion. Give them a taste of the company’s personality.
  • Expect a long and lengthy process. You’ll need to submit your business plan, discuss its details, go through due diligence, then wait for approval before receiving a term sheet

Wrapping It Up

Venture capital is a good way to receive funds for your company’s expansion. But again, it is not for everyone, so be sure to learn more about the process and what it entails before choosing this path.