<aside> 💡 This is not a holistic guide to Venture Capital, but rather a short reminder of the mechanics behind VC funds. Once you have understood what it means to become a venture-backed startup, we are proceeding by sharing some communicational tips.
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Being a “VC case” means showing the potential to become an outlier. More specifically, this includes proving that the venture can grow to sizes that will be able to return the fund. Thus, depending on the fund size, such a “VC case” can massively differ in size.
Without going into too much detail, a VC case is also primarily a product-oriented business. This type of business usually involves high upfront costs resulting from the effort required to produce a well-functioning product (hardware or software). However, once that product is up and running, the gap between revenues and costs should widen significantly. Otherwise, your company may be classified more as a service-oriented one, where increased revenues are accompanied by increased service efforts, so that revenues and costs grow in a similar manner.
Before jumping into the process of preparing your fundraise - pause ⏸️. And think about the changes that will consequently result from receiving VC money.
In addition to financial support, a venture capitalist gives you access to their broad network of industry experts, business gurus, serial entrepreneurs, potential corporate clients, etc. In addition, large venture capital funds have experience in scaling companies from 0 to 1 to 100, which comes with broad expertise in sales motions, hiring structures, fundraising preparations, and many other aspects of scaling. However, you need to be aware that you will be working closely with this investor for the next few years (depending on the stage, of course). So, pay attention not merely to the hard facts but also to the interpersonal aspects.
<aside> 🚨 Besides that, receiving VC money comes along with certain changes. A VC backed company is changing massively towards a strong one-dimensional focus on growth. This is due to the fact that the Venture Capital business model requires a specific threshold of multiple returns in a period of approx. eight to ten years (depending on the maturity of the fund) that can only be generated with a certain growth rate of the respective startup.
Also, be aware that Venture Capitalists need that exit. There won’t be the possibility of inheriting the business or the likes. Receiving VC money means getting an external party onboard.
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<aside> 💡 Before diving into all the details and documents needed for a funding round, let's briefly talk about appropriate communication and existing misunderstandings between founders and investors. Check out the following aspects when it comes to approaching a venture capitalist or managing the overall investment process.
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