Venture Capital and You: Tips for founders seeking venture capital
Venture capital (VC) is more than a buzzword in tech and business. Venture capital is an impactful way to finance a company. While only a small percentage of companies raise venture capital, influential and entrepreneurial tech companies such as Google, Microsoft, Airbnb, and Uber have raised venture capital in their development. With that said, here are some tips for founders seeking capital.
1. Ask yourself, do you really need VC?
Receiving venture capital has some great advantages when done so from the right VC firm. For example, not only do you receive the capital you need to handle operational costs, prototype development, and other costs, a good VC will provide additional resources like a network or their personal expertise gained from growing other companies in your industry, which helps accelerate your companies growth. On the other hand, the risk of VC is that you are giving up a portion of your company to the VC and giving up some freedoms in your decision making. Also, the funds you are expected to return to the VC are always much more than the original capital, maybe 10 times more. Seriously consider if VC is right for you.
2. Learn to understand term sheets.
A term sheet is a document that summarizes aspects of the deal structure between a VC and a founder. It is critical! Term sheet outline the economics and control of the deal. The economics of the deal refers to the return investors get in a liquidity event, for example. if the company is sold. Control refers to the mechanisms that allow the investors either to exercise control over the business decisions or to veto certain decisions the company can make. There’s a lot of legal jargon involved, but understanding the term sheet allows founders to better navigate and make the most out of their relationship with a VC. Venture Deals is a great book to build a foundational understanding of term sheets and the wider world of VC.
3. Build your network.
The best way to break through boundaries is to have the best relationships with VCs, founders, and anyone in the space. Attend meetups, pitch events, hackathons, get in spaces where ideas flow, deals are made, and companies succeed.
4. Have your receipts
When pitching makes sure you have data to back up assure the VC that your company is a good investment. when pitching, cost of operations, if you rely on third-party content where t you get it from
5. Build a strong team.
VCs are not only looking at your product and how it meets the market. They are also assessing your team because they want to be sure that the team behind the product can operate cohesively and efficiently to make the company a success and create a substantial return. Metaphorically, you can build a great ship, but you can’t go anywhere if your crew doesn’t know how to sail and navigate.
Those are my tips. Keep learning and hustling!