Everything you should know about choosing the right Venture Capital

Emma Revert
21 August 2019

You might know the basics of Venture Capital firms (VCs). These financing organizations raise money from different sources to invest in startups.

What we've learned after many calls, and from our own experience, when having an idea for a new business, simple questions like "Where do I get the money from?" might arise. Take a deep look and learn more about this private equity type.

Why should you choose Venture Capital?

You have your company, but you need support for long-term solid growth? Then Venture Capital financing might be the starting point.

As a funding, VCs offer solutions tailored to your company’s needs: from the first strategy to innovation, from development to market penetration. VCs look at future trends to make your business successful. Let's get a closer look into the benefits of going with a VC:

1. Their goal is to help you build a successful business by understanding your fundamentals. It is all about strategy, so VCs go deep into your needs and understanding your business to get the best of it.

2. Timing is important. Launching your product to the market might seem to be a priority, but it has to be done at the right moment. That's why a VC, unlike public investment, is considered "patient money" or “slow money”, giving you time to grow at a natural pace meeting realistic analytics and goals.

3. Leave out the burden. Starting a business might be stressful enough: plans, decisions, milestones, new plans, new actions... That's why delegating the financial risk into a VC will leave you with more time to focus on growth plans.

4. Economies of scale. VCs operate in many sectors, which gives them connections. Choosing a VC will open you many doors which will facilitate your company growth.

5. The goal: A better outcome. When growing your business you expect a great outcome, and that's where everything leads too. Therefore, VCs are the best option to achieve that, with their experience, data that reasserts their success and their proneness to invest in R&D.

What are the main industries VCs invest in?

Let’s move to the investors' point of view. From Dealroom’s 2019 Q1 European trend report, we learned that VCs tend to invest in smaller deals. The enterprise software industry and Fintechs are the preferred ones by VCs to invest in. In fact, the investment value for those sectors resulted in an increase of 60% compared to the previous quarter. When it comes to business models, Saas and Manufacturing take the crown. But as the report shows, trends change quarter by quarter, so do not resign if you are not inside those groups. Venture Capitals move billions of euros in all sectors.

 

Source: Dealroom’s 2019 Q1 European trend report

When moving to different locations, UK stands the first one in the list with 2.1B € investment, followed by France and Germany. Generally, the first quarter of 2019 seems to be one of the most active quarters for Europe along with history.

How to attract VCs?

Now that you know why you should choose a VC and what trends they follow, it’s time for you to sell your idea and convince them to invest in it. 

Before getting into action, bear in mind that you should reach the highest level of VC firms you can, choose the right partners inside firms over anything else, and choose the right “VC personality” to invest in you (i.e. keep your values afloat). Remember that every firm has a different perspective on what's important, so we'll give you general tips.

Time to roll up your sleeves and get noticed by your desired VCs. We’ve learned that previous experience is preferred over the adventurous, new genius inexperienced spirit and that the final goal, i.e. customers, is the focus of the final decision. Therefore:

  1. Show experience. Do not panic if this is your first jump into the adventure. You can still sell your product and get the fundings (check our article: How to build a pitch deck for greater detail). A good option if you’re a rookie, is to have a solution for every problem, that not only solves it but improves the idea.

  2. Who gets the product? The Customer! The customer is the one who will buy/consume your product, therefore VCs do not risk when basing the revenue on them. Why would they buy it? Why is it worth it the price? Does it give value? Try to answer as much as possible about the final user, think big and have small action plans.

  3. Your business model. It is as simple as drawing a square, where all the points connect and there’s no possible door for errors (it is profitable, there are options to expand, it is based on real facts). Even if some milestones appear after a deeper analysis, your purpose is to sell your idea as complete and profitable as possible. Therefore, try to challenge every assumption and test them if needed. Remember that they are trying to invest in something that will give a Return on Investment (ROI).

  4. Values and Team. Last but not least, the core on which you probably built your idea. You and your team (if you already have one), have passion and excitement about the idea, you believe in it and you are willing to do anything for it to be successful. You are proactive and flexible, always ready to make changes if the market requires them. And finally, you must show you have the knowledge, and a proof that you know what you are doing and why you are starting it. It’s all about action!

Are you ready now? Jump right in and apply all your knowledge. If you do your homework, the VCs exam will pay off. Let us know what you think in the comments below.

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