5 Tips for Raising Venture Capital

By: Michael Vodicka

“Venture capital is really just a fancy way of saying that a company is accepting private investments from private investors.“

Having a big chunk of cash to sink into your small-business can be an incredibly powerful resource to grow sales and drive the bottom line. But when most small-business owners think of such an infusion, borrowing money from a bank comes to mind. Although that can be a valuable resource for many, it also means you have to go through a rigorous lending process, make monthly payments and pay interest on your outstanding balance.

But if you’re looking for a method of raising cash that provides much more flexibility and enables you to define the terms of your financial arrangements, it’s time to take a serious look at venture capital.

When most people hear the term venture capital they tend to think of big-time technology companies and multi-million dollar deals. But the reality is actually much different. Venture capital is really just a fancy way of saying that a company is accepting private investments from private investors. What’s great about venture capital is that these deals can be structured in any way you like, totally customized between you and your investors to fit the unique needs of your business. So regardless if you need $5,000 or $5 million, bypassing the bank and accepting investments from private investors is a great way to raise cash for your business while reducing your financial liability to a third party financial institution.

On that note, let’s go ahead and take a look at 5 essential tips for securing private investors to keep your small business growing.

5 Tips for Raising Venture Capital

Prospectus

When lining up private investors for your small business, it is imperative that you have the ability to share the financial details of your company. That frequently takes the form of a prospectus, or for early-stage entrepreneurs, a formal business plan. This is a great way to create transparency around the investment process, enabling potential investors to gain a deeper understanding of how your company makes money, how profitable it is and how an infusion of cash will help you take the next step to more sales and income.

Network

You don’t necessarily need a global network of tech billionaires to raise a solid amount of cash for your small business. The reality is that your venture capital can come from anywhere and anyone that is interested in making a private investment in your company. That could mean friends, family, business associates, advisors or partners. Getting out there and sharing the great word about the awesomeness of your company and how you are in position to conquer the world will get people’s attention. So be sure to share your dream with as many people as possible and let the world know what you are up to.

Develop Key Contacts

But, if you DO happen to have a relationship with one of those mega millionaires with the financial resources to single handedly cover your capital needs, it can be an incredibly valuable resource. Not only because having a single investor instead of 15 stands to simplify your life, but also because big shots tend to know other big shots that also have deep pockets. So even if your primary target passes on an investments, it’s possible one of his associates will have a different view and be interested in stepping up to the plate and sinking some cash into your operation.

Exchange Equity

This is one of the important issues we will cover in this conversation. One of the great aspects of venture capital is that it’s usually a no-risk engagement for the small-business owner. That’s because in most instances, that venture capital is swapped out for an equity stake in the company, which means you and your small business won’t be on the hook for paying back big sums of money if for some unforeseen reason the business doesn’t succeed. Venture capital allows a company to disperse risk. That is sharply contrasted to a bank loan, where failed business owners can spend years paying back loans that were guaranteed by their personal financial profile instead of a fledgling business. This is exactly what Facebook (FB) and thousands of other tech companies have done, pushing financial liabilities off their balance sheets to minimize financial exposure.

Use Your Attorney

This might seem like a no brainer, but having a strong contractual agreement between your company and investors is crucial to the success of your relationship. How about another to Facebook? Remember what happened to Eduardo when he didn’t do his due diligence before signing new contractual documents? That decision could have potentially cost him billions of Dollars, so make sure to have all the details of your financial terms totally transparent and nailed down to ensure smooth sailing with your investors.

The Big Picture

Venture capital and private equity may seem like big, fancy words, but the reality is that it’s just another way of securing private investors for your business. And as you can see, there are many advantages to securing cash on your own unique terms instead of going through a bank and exposing your business to additional financial liabilities.

MONEY MATTERS is a weekly column on the Retail Minded Blog that is contributed by Michael Vodicka, founder of boutique financial consulting firm the Vodicka Group. MONEY MATTERS is Retail Minded’s way of supporting independent store owners with all their financial concerns, real life needs and everyday issues both in and out of their  stores. You can find MONEY MATTERS every Wednesday on RetailMinded.com as well as in each issue of Retail Minded Magazine. 

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