Entrepreneurs need venture capital for different purposes. Every stage of owning and growing a business requires a lot of funding. Traditional small business loans are not available or even appropriate for all of these stages. Fortunately, there are several other viable sources of financing, among which are venture capitalists (VCs).
Who are venture capitalists (VCs)?
VCs are investors who provide promising companies with cash in exchange for an equity stake and the hope of greater profits in the future. There are venture capitalists seeking opportunities in every market segment, and many even specialize in certain stages of funding. In order to attract the attention of the right venture capitalist, you need to know what type of capital you need.
Why do you need venture capitalists (VCs)?
Entrepreneurs need venture capital for the following three reasons.
1. Seed capital
If you are only in the beginning phases of business with not much yet beyond an idea, you need a VC who is willing to give your seed capital. This is business funding that can help you create your prototype, do some valuable market research, or hire a few key employees. While most VCs are only interested in later-stage investing, there are some who are willing to risk a small amount on your brilliant start-up idea if you manage to locate them.
2. Startup capital
Once you have become an actual startup company with at least a sample product and one full-time employee, you need startup capital. This you can use to continue your market research, fine-tune your product, or hire more employees.
In more detail, startup capital is necessary to pay for the initial hiring, leasing office space, acquiring permissions and licenses, stocking up on supplies, conducting market research, manufacturing products, marketing, and any other operating costs. This can still be a difficult stage to find excited venture capitalists, but searching hard to uncover the right one can pay off big.
3. Early-stage capital
When your company has really started to take off, with strong increases in sales of your service or product, VCs start to salivate at the mouth when thinking about investing in your business. This early-stage capital could be used for bumping up marketing, improving the product, or your company’s overall efficiency. There are typically plenty of VCs available at this phase willing to take the risk for a shot at some equity.
After determining what type of funding you need, the next step is to seek out a VC that matches the goals of your company. This can be done by networking, searching online databases, or just doing some thorough research into possible investors.