Venture capital is also known as private equity finance. Unlike business angels, venture capitalists (VCs) look to invest large sums of
money in return for some of your business' shares.
VCs typically invest in businesses with:
» a minimum investment need of around £2 million
» a business plan that is ambitious but realistic
» a product or service that provides a unique selling point or other competitive advantage
» large earning potential and offering a high return on investment within a specific time frame, eg five years
» sound management expertise - although VCs tend not to get involved in the day-to-day running of the business, they often help with a
business' strategy
» a proven track record - for this reason start-ups are generally not considered by VCs for investment
The advantages of securing a VC are that they can provide large sums of equity finance. VCs can bring a wealth of expertise to your
business. Also, if you successfully attract a VC to your business, you are likely to find it easier to secure further funding from other
sources.
The disadvantages are that securing a deal with a VC can be a long and complex process. You will be required to draw up a detailed business
plan, which should include financial projections. You are likely to need expensive professional help for this. Also, if you get through
to the deal negotiation stage, you will have to pay legal and accounting fees whether or not you are successful in securing funds.
There are several venture capital associations. The following are two of the most well-established:
The British Venture Capital Association (BVCA). The BVCA helps larger businesses locate venture capital companies.
The European Private Equity and Venture Capital Association (EVCA) provides information and networking opportunities for investors,
entrepreneurs and policymakers in the equity finance industry.
