Venture capital basics
Who are venture capitalists?
VCs are private-equity investors. VC firms invest funds provided by limited partner investors. These limited partners can be pension funds, insurance companies, foundations and even individuals with ultra-high net worth.
These firms provide funding to companies that show potential for significant growth. In exchange, VCs get an equity stake in the business. VCs see investing in new or expanding companies as a high-risk, high-return activity. They’re looking to make more than they could investing in the stock market.
What’s an equity stake in a business?
An equity stake means owning a percentage of the business. When a VC invests in a business, they do it in exchange for a percentage of the business. This means they gain significant control over company decisions.
How much do VCs invest?
Venture capitalists usually make good-sized investments, and those numbers are going up. In 2020, more than 10,800 U.S. companies received venture funding. And 3,680 venture funds had $548 billion in assets under management, according to the National Venture Capital Association. The amount of money that VCs invest in individual startups obviously varies. However, they invest after the initial investing rounds, after a business has had time to get their act together and really show potential.
Do VCs invest in the Midwest?
You bet. California and New York have the highest rate of VC investments in the country. In 2020, Missouri ranked 24th and Kansas ranked 38th among states for capital invested by VCs. That money matters. Missouri companies raised more than $475 million in venture capital through a total of 79 deals. And Kansas companies raised almost $100 million through 21 deals.
Is finding venture capital a good idea for my business?
Possibly. Read on – or call KCSourceLink at 816-235-6500. Our Network Navigators provide free help. They can point you to the resources that are right for you and your business, no matter what funding stage you are in.
Who should work with a VC?
Venture capital funding can be a good fit for businesses that are about to see significant growth. But the owners need to be in the right mindset.
Before you meet with a VC, you and your business partners need to answer some tough questions:
- Am I willing to give up some ownership and control of the company?
- Can I show that the company will likely show significant revenue and earnings in the next three to five years?
- Can I demonstrate that my company will produce a solid return for investors?
- Am I able to take guidance from investors and accept decisions from the board of directors even if I don’t always agree?
- Do I have an exit plan that might mean I’m not involved in the business in three to seven years?
If your answers indicate major company growth and flexible business partners, finding a VC might be a smart next step. And if you’re not there yet but headed in that direction, KCSourceLink can help you take those final steps. Reach out to our Network Navigators.
How do I prepare to meet with a VC?
Once you’ve taken an honest look at your company, you need a solid business plan and executive summary. It should include:
- Financial overview for at least the next three years
- Sales and marketing plans
- Goals for the next three to five years and the actions you’ll take to reach them
- Exit strategy
This list might appear short, but those four bullet points represent a lot of heavy lifting. You need a detailed road map for your business and a pitch that perfectly represents it.
We highly recommend working with an expert to find the best investment group and prepare your pitch. Many resources are listed here. Not sure where to start? No worries. Call KCSourceLink at 816-235-6500. We can connect you for free with the experts who can help you reach your goals.
Who Can Help?
Other VC Resources
Check out the KCSourceLink calendar. It’s a complete list of upcoming events. You’ll find opportunities ranging from fine-tuning your idea to pitching it to potential investors.
Get personalized VC help
Finding the right funding at the right time can be a challenge. But you don’t have to go it alone. Check out The Resource Navigator to narrow down your search. Or, give us a call at 816-235-6500. KCSourceLink can create your Personal Action Plan of next-step resources for free.