Venture capitalists (VCs) are investors looking to make high-risk, high-reward investments in companies with the potential for significant growth and return on investment. In addition, VCs are looking for companies with a unique selling point or competitive advantage that sets them apart.
VC firms invest in a portfolio of companies, and they expect some of those businesses to fail. However, they expect the successes to more than makeup for the losses. Therefore, a business plan seeking VC investment must show a clear gap in the market or demonstrate how the company plans to introduce a highly innovative new technology.
Venture capital is usually offered in stages, starting with “stage A” investment in a start-up or pre-profit, which can start at as little as £50k. Subsequent stages of venture capital investment, such as stages “B”, “C”, “D”, and so on, increase in value, potentially up to tens of millions of pounds. Most VCs also want to see a proven track record before investing, so they rarely invest at the start-up stage. However, micro-VCs, the fastest-growing sub-segment of the VC market, precisely target businesses at the seed stage.
Venture capitalists invest more than just money; they also want representation on the board and offer strategic advice to support the company’s growth plans. Business angels, on the other hand, are individuals who invest their own money in potentially rewarding business opportunities.
It is essential to understand the difference between venture capital and angel investment. Businesses often use angel investment as a start-up and look to secure venture capital later as they grow.
Securing VC investment can be a complex, costly, and time-consuming process. A detailed business plan is necessary, and legal fees will be incurred during the deal negotiation, regardless of whether the investment is ultimately secured. Therefore, seeking professional advice and support from experienced professionals is advisable.