A Venture Capital Firm operates quite differently from a bank or other financial organizations. While banks aim at receiving interest incomes, venture capitalists look for long-term profits, which usually extend from 3 to 8 years. Banks are just creditors while venture capitalists own a share (25% to 50%) of your ownership in the company.
Now, the biggest challenge is to attract a venture capital firm because these professional investors are extremely tough to convince. This is due to the fact that the type of investment they deal with involves huge risks so they take extreme care while exploring your business.
If you are planning to attract one, make sure you have all the requirements fulfilled which the investors eagerly look for. Firstly, you need to have a unique product/service to offer. It should target a sizeable market and should be built on a strong and innovative business model. The investors would see if your product or service can gain traction and generate huge profits; they expect an ROI at least 3 to 5 times their investment in 5 to 8 years. They want the ROI to make up for their failed investments.
Value proposition is a must. You have to prove to the investors how your product is different from your competitors. There needs to be something special about your business to ensure that customers will come to you instead of hitting some other store. You can even demonstrate this with the help of a group of Beta customers who trust your business and are willing to wait till it attains a successful position.
Next is the presence of a smart, committed, honest, decent, hard-working and highly-organized management team in your company. Do you have one? Check this out before you approach a venture capital firm. Your management team is your biggest strength as it represents the actual structure of your company. If you have a strong team, investors will automatically get attracted towards your business.
It is not easy to forecast the future of your startup, neither for you nor for the investors. What you can do is, give them a clear idea about your plans and missions, and let them know where you are aiming to be after 5 years from now and also the limitations, if there is any. This is because the venture capitalists are highly knowledgeable people and, usually, invest in an industry which they know well. So if there is any limitation, they will definitely help you overcome it if they find that yours is actually a highly-potential startup.
Lastly, make sure the investor is interested in the industry you are dealing with. Explore their site to see whether their portfolio companies are from your sector. Finding a suitable venture capital firm can be a boon to your business, so make sure you have all the above mentioned things at proper places.
For more information on venture capital firms, feel free to visit http://mergeralpha.com/