There are literally thousands of venture capital firms out there, but they’re not all alike. Learning which ones are most likely to invest in your company -- before you make a formal approach – can help you get better results, faster.
Your company’s stage of development will help determine how much you can expect a venture capital firm to invest and which firms might be interested in you.
Some venture capital firms prefer to work with companies at a certain stage:
- Early stage. You need seed or startup capital for market research, creating and testing prototypes, initial production, distribution or marketing.
- Expansion stage. You require cash to cover production costs until you start showing a profit, for new product development, advertising, or short-term bridge financing heading into an IPO.
- Acquisition, or buyout, stage. You want to expand by purchasing a competitor or complementary business.
Where to look for a venture capital firm:
- Ask colleagues for referrals and personal introductions.
- Network at business functions to gather referrals and meet venture capitalists.
- Learn who has funded successful companies in your industry.
- Check out Small Business Investment Companies, for-profit firms that operate within the SBA offering venture capital for startup or expansion.
Where do you look for venture capital? Start close to home. Many venture capital firms typically invest locally, so they can stay more involved with you. And consider your company's market sector. Firms focused on your industry are most likely to know your market(s) and can help ensure your company’s success.
Venture capital partners experienced in your field can provide the best advice as well as shared contacts. Firms whose portfolio includes companies in your field can create synergies among those companies, which may also benefit your business.
Look for a firm with a successful track record and enough assets to help you later on. It may be easier to get additional funding because you’re already working together.
You’re not just applying for a loan, you’re building a long-term relationship. So compatibility counts, as does “inside” industry knowledge. The right venture capital partner will be as committed to your company’s success as you are.