Funding is often a major stumbling block for many South Africans starting their own businesses. Each type of funding is different. Each has its advantages and disadvantages which are important to consider. One way of raising funds for a business is through venture capital.
What is venture capital?
This is money provided to seed early-stage emerging companies. Venture capital funders usually invest in companies in exchange for equity in the companies they invest in.
This means that venture capitalists usually get significant control over company decisions. This may be one of the reasons why venture capital is less popular than borrowing from financial institutions.
What do venture capitalists look for?
Venture capitalists examine existing or planned products or services and the potential markets for them with extreme care.
They often look specifically for firms they believe can rapidly increase sales and generate substantial profits.
They also often look for firms to invest in with long-term capital.
How to raise venture capital:
Ensure that your proposal shows that your business has something special and unique.
Be clear about your goals for the company.
Be open to evaluation by consultants. This process will be in-depth and extensive, so be ready to have every aspect of your business scrutinised.
Be clear about your production costs. This will show potential investors that you have a well-thought-out plan for your company, which may improve your chances of getting capital for your venture.
Ensure that your business is registered and that management has no criminal transgressions as well as clear credit.
Demonstrate that your management group has an outstanding record.
Try to improve your chances of raising capital by applying with venture capitalists or firms that fit in with the established geographical, technical or market area policies of your proposed venture.
If your firm is a start-up, don’t give up on potentially getting funds.