How to Find Venture Capital to Fund Your Startup: 5 Methods
Building a startup is difficult. On top of building a product, hiring a team, and taking a product or service to market — founders need to find funding for their business. Since the early 2000s, venture capital has exploded as a common funding option for many startups.
However, venture capital is not always the right solution for every business. Learn more about venture capital and how you can find it for your business below:
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What kinds of companies are venture capital for?
While the venture capital industry has exploded, it does not necessarily mean it is the right funding solution for every business. Venture capital is primarily for businesses that operate in large (or potentially large) markets that can turn into huge exits for venture capital funds.
VC funds are funded by limited partners (LPs). Limited partners generally invest in many different markets and assets — because of this, VCs are competing against public markets meaning they need to invest in companies with the opportunity for huge success.
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What is the difference between venture capital and angel investment?
Another option similar to venture capital is angel investors. Both generally operate as equity investors, but angel investors do not have the pressure to generate huge returns that a venture capital fund might feel.
As put by the team at Investopedia, “An angel investor is a high-net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, angel investors are found among an entrepreneur’s family and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages.”
Related Resource: How To Find Private Investors For Startups
1) Online platforms and investor databases like Visible Connect
If you determine that venture capital is right for your business, you’ll need a strategy to find and pitch the right investors for your business. We have found that the average founder speaks with 50-100 investors over the course of a fundraise.
In order to make sure you are spending time on the right investors, you need to have a clear understanding of the type of investor you are looking for. From here, you can build out a list and start reaching out and finding warm introductions. To find investors your for your startup, check out our free investor database, Visible Connect.
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2) Venture Capital Associations
Different venture capital associations and firms can be a great way to get familiar with the eco-system and finding connections to potential investors. Check out a few popular VC associations below:
National Venture Capital Association (NVCA)
As written by the team at National Venture Capital Association, “NVCA unites the U.S. venture ecosystem to support the formation of high-growth companies and ensure the U.S. remains the most competitive environment in the world for entrepreneurs.” Learn more about NVCA here.
The Small Business Administration’s (SBA) Small Business Investment Company (SBIC) Program
As put by the team at The Small Business Administration, “Created in 1953, the U.S. Small Business Administration (SBA) continues to help small business owners and entrepreneurs pursue the American dream. SBA is the only cabinet-level federal agency fully dedicated to small business and provides counseling, capital, and contracting expertise as the nation’s only go-to resource and voice for small businesses.” Learn more about the SBA here.
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3) Online VC databases and lists
There are countless online VC databases and lists intended to help founders filter and find the right investors for their business. Over the course of a fundraise, it is crucial that you are spending time on the right investors for your business. With Visible Connect, our free investor database, you’ll be able to filter and find investors based on the properties that matter most to your business.
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4) Social media platforms
Venture capitalists tend to be active on social media — like Twitter and LinkedIn. If you are unable to find a warm introduction to specific investors, social media can be a great place. By engaging with potential investors and introducing your business to them, you’ll be able to better your odds of finding an introduction or booking a meeting.
5) Networking – online and in-person
Investors are making a large bet when investing in a business. In order to build trust and move your fundraising along, you need to be constantly building and maintaining relationships. One of the best ways to do this is by leveraging online resource and in-person events to network. We find that sending a simple monthly update is a great way to help investors build conviction and trust in your business. Check out an example below:
Related Resource: Potential Investor Nurture Update Template
Tips for securing venture capital
As we mentioned above, making sure you are spending your time on the right investors is crucial to a successful fundraise. Check out a few tips for securing and finding the right investors below:
Find venture capital firms that invest in similar companies
First things first, you want to make sure you are pitching investors that invest in similar companies to yours. This means similar market, check size, and stage. You can filter by all of these fields in Visible Connect.
Know your business valuation
VCs are equity investors. Because of this, it is important that you have an understanding of your valuation and will be able to speak to it during your fundraise.
Related Resource: Valuing Startups: 10 Popular Methods
Ensure the VC firm matches the necessary funding stage
Venture capital spans many stages. Some investors will primarily invest in pre-seed or seed stages. On the flip side, some investors might solely focus on later stage investments. In order to make sure you are the making the most of your time, be sure that the investors you are targeting invest in your stage.
For example, if you are looking to raise a $1M seed round, you should not be pitching investors that write $20M+ checks.
Related Resource: The Understandable Guide to Startup Funding Stages
Examine the firm’s funding history
Another area to consider is a firm’s funding history. Venture capitalists typically raise 1 fund at a time. Generally, they will distribute this fund over 8-12 years. If you notice that a VC fund was last raised 8 years ago, it might be time to look for a fresher fund. This is because they might be more stringent with their investment criteria as they are reaching the last of their funds — the last capital could be reserved for current investments.
Related resource: Carried Interest in Venture Capital: What It Is and How It Works
Understand considerations for location
Some investors will only invest in specific locations and geographies. Most investors are very clear about this on their marketing site. Make sure you are paying attention to their investment criteria and fit the geographies they are investing in.
Secure venture capital funding with Visible
At Visible, we like to compare a venture fundraise to a traditional B2B sales process. At the top of your funnel you are adding qualified investors. Moving them through your funnel with meetings, email updates, pitches, and other communications. And ideally, closing them at the bottom of your funnel as a new investor.
See how Visible can help you along every step of your fundraising funnel. Give VIsible a free try for 14 days here.
Related resource: Understanding the Advantages and Disadvantages of Venture Capital for Startups
