If you have seen the BBC television show Dragon’s Den, you shall already have an understanding of the basics of Venture Capital.

 

When they are starting out or growing, small businesses or ‘ventures’ require capital to expand further, and one of the ways to secure a large injection of funds into the business is through venture capital.

 

In the case of Dragon’s Den, the Dragon’s are Venture Capitalists or Angel Investors, offering investment to small businesses that they believe will be successful based on their expertise, in exchange for a stake in the business.

 

While most Venture Capitalists are not as wealthy as the Dragons that we see on BBC (Peter Jones being one of them!), the principle is the same.

 

If a Venture Capitalist deems a business to have enough potential after taking all aspects into consideration (idea, ambition, management, innovation, USP etc.) they will offer a certain amount of funding in exchange for shares and a percentage of control over the business, often joining the businesses board along side the owners, managers and directors.

 

Venture Capital does not always come from an individual investor like we see on the Dragon’s Den. There are also Venture Capital businesses. These businesses are modelled around Venture Capital, by investing in smaller and growing businesses in exchange for shares, and in turn help these businesses grow.

 

Venture Capital firms are becoming a more popular source of finance for small and growing businesses, especially since loans from banks have become less accessible and harder to receive for such businesses.

 

Furthermore, when a Venture Capital firm or individual is brought into the business, not only are they lending funds, but they are also lending their experience to the business, which in itself can be invaluable.

 

Venture Capital Firms can typically lend anything between a few hundred thousand pounds, up to around £2 million and above, showing the flexibility and variability of venture capital funding.

 

Ordinarily, companies that choose to raise funds this way will normally be generating revenue already, which will be taken into consideration by a Venture Capitalist individual or firm, but they have also been known to be supportive of start ups that look promising.

 

Informed Funding’s network includes a number of Venture Capital firms, and it is important that you get as much information as possible before making a decision on what type of finance is right for your business and unique position. We have written a comprehensive overview that looks and what you need to consider when looking at Venture Capital as a means of raising funds.

 

This can be seen here, and we have also summarised it below…

 

Key Considerations:

 

Þ   You will be pitching your business idea to another business that is looking to invest. They will have seen many businesses, so yours has to stand out from the crowd. This doesn’t just mean you need a good business idea, but you also need an excellent business plan, with growth predictions that shows your potential. Attention to detail is vital, as your business will be scrutinised for months before a firm makes their decision.

 

Þ   Venture Capital firms are not only doing business with your business, but they are also going to working with you. This works both ways. Ensure that you are confident and comfortable with the people you are handing some control of your business, taking at least one seat on your board. If it works, it will likely be a long-term partnership, and both parties will benefit, so a good relationship is vital.

 

Þ   Receiving Venture Capital funding from a firm is a glowing endorsement of your business, as it will mean that a business who specialises in assessing business models has deemed your business worthy of investment. While you will give up some control of your business, the benefits it brings; funds, experience and confidence, can mean that Venture Capital is more beneficial than alternative funding options.