Venture Capital Explained
Venture Capitalists (“VCs”) are another source of finance for businesses when debt is not an option and there is no access to capital markets. A VC is a professional investor managing a fund and looking for suitable investments for that fund. This differs with the more personal approach taken by a Business Angel who as well as investing will be seeking personal opportunity and to add value to the business. Whist some VCs may contribute their experience, they are much less hands on, often only being involved at a strategic level.
Although some VCs will invest in start-ups, they usually look to invest in a business which has a proven track record. They also tend to look for products or services that have a unique selling point or competitive advantage. Like other capital providers, they will be seeking out high returns and long term growth potential.
Securing a deal with a VC can be a long and complex process. A detailed business plan/information memorandum will need to be prepared incorporating historic financial data and analysis of performance to date and realistic financial projections with sensitivities – see our paper Is Equity Finance For Me? If legal fees are incurred in the deal negotiation these will be a cost to your business regardless of whether investment is ultimately secured.
For further information see the British Venture Capital Association http://www.bvca.co.uk