For startups looking for funding, venture capital will almost certainly be a top-of-mind source of investment. With venture capitalists sniffing for up-and-coming businesses to put their money in, founders clamour for just a few minutes of their time, to hopefully secure funding that can help propel their brilliant idea forward.
In this article, we discuss everything a startup founder needs to know about venture capital — the whats, the hows, and the whys — to help you plan a strategic approach when dealing with venture capitalists, and make you more investable.
What is Venture Capital?
Venture Capital (VC) is exceptionally high-risk investment. Unlike angels, who will generally invest in lower-scale opportunities and, as a result, will be satisfied with a lower (10x or 20x) return on their investment, Venture Capital funds are very much unicorn hunters. They’re focused on getting behind new businesses that have the potential to blow up into big, billion-dollar companies that will deliver them a 100x return or more.
For that reason, Venture Capital companies will usually only enter the investable entrepreneur’s arena after the very early seed funding stages. They’ll typically focus on startups that already have a revenue-generating product in the market and are looking to raise £2m and above. Usually, those startups will already be approaching £80k per month in recurring revenue or be close to £1m in annual recurring revenue, which means they’re well on the way to establishing themselves but still have a long way to go. This is when they’re most likely to grab a VC’s attention.
How does Venture Capital work?
Because the next unicorn could come from anywhere (it might even be you), Venture Capital firms invest in many different businesses to give themselves the best chance of finding the next twirly-horned rock star. Think of them like very strategic, upper echelon spread betters.
VC vs angel investors
Besides the fact that VCs are looking for much bigger rewards than an angel investor (although if an angel inadvertently invests in a unicorn, they definitely wouldn’t complain!), there is another crucial difference between them.