What can Venture Capital funding be used for?
Launching and running a business can be expensive, so as a startup you are going to need some way to cover these costs until you begin generating revenue. One of the ways to cover these costs is to find funding from a venture fund or VC firm. This can help you meet multiple costs for your business including:- Renting or buying office space
- Research and development
- Buying inventory
- Buying office equipment
- Paying employees
What do you need to understand before working with a VC Fund??
Choosing a funding partner is a big commitment and not something that you want to rush into. So, we at the Velvet Communityrecommend that you consider some things before deciding to work with a venture capitalist:- Understand exactly what Venture Capital Fund is
- Understand that a Venture Capital Fund is your partner.
- Understand that you are giving some control to a Venture Capital Fund.
1. Understand exactly what a Venture Capital Fund is
Firstly, you need to understand exactly what a Venture Capital Fund is so that you know what you are getting you and your business into.
A VC Fund can be a private investor or a group of investors that provides funding and support to companies. The support that they provide always comes in the form of financial investment, but can also include such benefits as introductions to potential customers and strategic advice.
VC Funds usually choose to invest in startups when they see that the business exhibits a potential for high growth, and they are often active in industries that are seen as high risk.
What do the investors get in return?
VC Funds usually invest money in return for an agreed-upon equity stake — for example 15%– and will always want a return on their investment over a specific period of time.
Of course, you need to take into consideration that you will be giving up a percentage of your business and whether this will be of great benefit to the business you are developing.
Someone willing to put their money where their mouth shows that they really believe in your business, and they will usually be willing to help you ensure that you make a success of it by providing other services they see the business needs.
2. Understand that a VC Fund is your partner
A VC Fund of course provides funding, however they can provide so much more than that.
In the best situation they are your partner, and they will help steer the business and ensure that it is a successful venture.
This does mean that you have to choose wisely. Choosing a VC Fund is as important (if not more important) than hiring an employee. Not only is the fund pivotal to the success of your business, you also can’t ever fire them. So, it’s a good idea to invest the time and effort into choosing the right fit for your business, and ensure that you are on the same page.
Of course, the benefits of choosing a great funding partner is that they will be engaged in the success of the business, and can bring so much more to the table than finance.
Tapping into the expertise of a VC Fund is an amazing opportunity, and opens up a whole world of possibilities. Not only might they have experience and skills beyond your own, but they will likely have connections within their network that can be beneficial to your business.
It might be a good idea to have an investor (or investors) that understand the vision of your business and have experience in your industry so that you can leverage this to your advantage.
So, working with a VC Fund isn’t just about getting a quick injection of cash and being left to it. It’s about developing a relationship that will be mutually beneficial to you both.
3. Understand that you are giving some control to a VC Fund
One of the main things to consider when deciding whether Venture Capital is the right investment route for you, is that you will be giving up some control along with a percentage of your company.
Among other things, control and equity helps the investor to reduce their risk when it comes to a high-risk startup.
How much control you relinquish will depend on your agreement, however the lead investor might negotiate a place on your board, and will therefore have some control over the running and the future of your business.
Again, giving some control of your business doesn’t have to be a bad thing.
Part of the reason that people look for VC funding is to benefit from the experience of the investors as well as their financial input. Your investors will expect a return and will have a vested interest in ensuring that this happens. Them having some control over the outcome of the business can only be a good thing for you both.
Ready to get some venture funding?
Finding a venture partner can be quite a big commitment, so it’s important that you consider some things before deciding that it’s the right investment option for you and your business.
However, it can also be an amazing injection of funding and experience into your business and can be pivotal to the success of many young startups.
This is where keeping up with the Velvet Community can be beneficial to your startup. To be the first to know about Velvet, and for more financial tips for startups, sign up for the Velvet newsletter. At Velvet we believe in the success of all startups
