Venture capitalists – Here’s all about the big guns of funding

To go big and to get there quick, go to a VC!

 In the beautiful world of startups, there’s one name that’s usually uttered in hushed, almost revered tones. Venture capitalist! This is because VCs are the key to success for many startups that dream big and want to do so quickly.

Who are venture capitalists?

Venture capital is private equity that firms provide to small businesses and startups. VCs usually look for startups that have an exit strategy already in place. And, because they invest a lot of money, they show interest only in startups that are promising and show a lot of potential.

The largest benefit of VC funding is that you don’t have to return the money. However, there’s an asterisk to this benefit. Like all investors, VCs also expect an ROI. They want to get their money back along with some kind of profit. So, unless they know that you will go public or pitch for an acquisition in 3-5 years, they will not be interested. Another point that you must know is that some of them will ask for equity. A few startups end up giving more than 50% of their stakes and lose ownership. Of course, this totally depends on the deal.

VCs are also quite specific about the industries they invest in. They may not be interested in certain industries that don’t showcase a promising future. This is again due to the fact that the amount of money they invest is large and only 1 out of 20 the startups they invest in may make it big. To cover up the losses and to be cautious, they prefer choosing industries and niches wisely.

VCs are usually very adept businessmen and women who know how industries work. They are very well connected with startups, investors, and professionals. Their experience and mentorship will definitely give your startup a huge boost as they are very closely involved with the businesses they fund.

What do VCs expect?

To increase your odds of venture capital financing, you must understand their expectations. These may vary with the VC but almost all of them keep an eye out for the following: 

  •   Large market value for your product or service
  •   What makes your offering unique
  •   A solid management team
  •   Passion of the founders
  •   A realistic expected valuation

What are the requirements?

Before heading over to a VC, you should have a few documents and presentations in place. You should also be prepared to answer a wide range of questions about your team, financial goals, etc. They will judge you based on the pitch and your professionalism among other things. Here’s what you should pay close attention to: 

  •  A highly professional and interesting Investor Pitch Deck
  •  A clear financial plan explaining how you plan to spend the money
  •  A reference from a trusted entrepreneur, lawyer, or investor. More often than not, VCs do not prefer going through executive   summaries and pitch decks. If they want them, they will ask you. They would much rather hear about you from someone they   trust. That’s what perks their interest. So, if you know someone who can help you out, go for it!
  •  A business plan that also throws light on the risks and how you plan on curbing them
  •  An exit strategy

 It usually takes 6 months of meetings, discussions, negotiations, etc. before you finally get the venture capital investment. Be prepared for the tedious process!

Where do you find good VCs?

Some of the top VCs in India are Accel Partners (funded Flipkart, BookMyShow, FreshDesk), Sequoia Capital India (funded JustDial, bankbazaar.com), and Helion Venture Partners (funded MakeMyTrip, Taxi4Sure). We recommend that you go through Inc42’s list of top 47 active venture capitalists for details of popular VCs.