Funding is usually the primary barrier for most startups. If your business has the potential for high growth, you can secure financing from venture capital. Below is a list of tips if you wish to secure venture capital funding for your startup.
Patent Your Intellectual Property
If your startup relies on a new and improved process or new technology, you should secure a patent before seeking investors. To facilitate patent protection, Brad Kern says you should work with a patent lawyer to establish whether your idea is unique or close to an already patented idea. Avoid sharing your idea before patenting it, as it can limit your ability to secure a patent. Ensure that no one has the rights to your ideas, including former employers or business partners.
Establish a Team of Advisors
When your business reaches the venture capital stage, keeping up with day-to-day operations may become challenging. Hiring an excellent team to assist you in business operations allows you to make critical decisions fast, increasing the chances of success. Build a team of knowledgeable and skilled individuals who advise you on the venture capital process, your specific industry, and your accounting needs. Fill in the gaps by including savvy investors and key employees or hiring professionals on a fractional basis.
Have a Budget
Venture capital isn’t a milestone or a prize on its own, but rather one of the options for raising funding for your business. Ensure you seek venture capital only when you require money to meet the next business objectives. Establish the funding you need before seeking venture capital to cater to your goals.
Prepare Documents
When you secure a VC, there are details that you need to remember.
- Elevator pitch: Your first step is to craft a brief elevator pitch to attract the attention of venture capital investors. Have an understandable summary that is easily understood by individuals with little or no knowledge of your specific industry.
- Business plan: Your business plan highlights your current financial status and business growth plans. Be sure to include headers, summaries, and a table of contents to improve your chances of success.
Review the Term Sheets
As your business progresses to the later stage of the venture capital agreement, the VC tables a term sheet having the deal’s complete terms. Term sheets include small details regarding the percentage investors will own in your company and the amount they’ll invest. Items that may appear on the term sheet include liquidation preferences, preferred stock, voting rights, valuation, convertible notes, board seats, and founder vesting schedules. Each item contains nuances that may alter a prospective deal’s actual value and rights. Ensure you participate in the negotiations and hire an attorney to review the term sheet.
Prepare for Due Diligence
If your initial pitch goes through, a VC may conduct a review of your business. Investors evaluate your business structure, financial statements, key employees, and facilities. This process’s primary goal is to confirm your pitch’s authenticity. If there are any lingering issues, the VC will allow you to correct them before the deal falls apart. Ensure you prepare well for this review before seeking venture capital to improve the chance of success.
Ensure you have the correct information when making business decisions. Ensure you prepare well by following the listed steps when seeking venture capital for your startup.
