Dealing With Venture Capitalists For Your Startup

Dealing with Venture Capitalists

Startups usually don’t have any connections with capital markets. Under such circumstances, Venture capital can be one of the most important sources of funds. Venture Capitalists are those investors who invest in the small business as well as startups. They generally look for potential and promising Entrepreneurs. They can be one of the easiest ways for you to get your funds. Before approaching a venture capitalist you need to do your homework. You need to analyze your business and then approach others. Make sure they invest in the very same field in which your company is established. Otherwise, your whole dream of obtaining funds will remain a dream only. Learn about your potential investors. Prioritize them on the basis of your needs and then make the first move. But what all other things are needed before that? How are you supposed to deal with these Venture Capitalists? The same is described below.

The first thing you need to do is understand the Venture Capitalists and how they work. They are just like you. They look for profit just like you do. The difference being that they have money and you have an idea. For a moment, think like a customer. Assume you need to buy apples. Now, there are three aisles of apples in the same shop but with different prices. Ten rupees for one lot is full of rotten apples. Fifteen rupees for another lot full of mediocre apple. Finally, twenty rupees for last lot full of sweet and juicy apples. What will you do? Will you go for the cheapest of all or will you choose on quality basis? Well, majority of people will go with quality. Similarly, venture capitalists see the quality and not the quantity. They look for people who have the potential to excel, to make their money double or maybe triple. It is more like a game of gambling. And in order to make venture capitalists bet on you, you need to be unique.

Secondly, you need to have an advisor. He can help you analyze those factors which may not even cross your mind. They will give you an honest advice. They will help you tackle these Venture Capitalists in a more easy and effective way. Your advisor should be chosen carefully. Find someone who has experience as well as wisdom. He should know how to play this game called ‘Capital and Funding’.

You will be offered a term sheet by the interested Venture Capitalists. The term sheet is a document which will outline your relationship with the opposite party, mainly in financial terms. They will cover all the important business terms and conditions. Hence making it is a very important document. Therefore, what you need is an effective and carefully drafted term sheet. In order to have one, you need to have proper awareness of your market, your requirements, your goals and the funding cycle. It will also make all the terms and conditions crystal clear to both the parties. Hence, avoiding any future disputes.

You need to tackle the ‘Elephant in the room’. When you deal with a Venture capitalist, it happens that while making all the future predictions and using flowery language, you ignore some of the present time issues. This leads to internal conflicts later on. And what’s worse? Both the parties know about these issues yet are afraid to talk on the topic. it is a major rule that you understand all the rules and regulations of the game you are about to play. Hence, you need to tackle. Avoid those awkward silences and ask away. Be confident.

Find the right investors. You need to approach only the potential ones. This will save your time, energy as well as money. This will also give you a large ground to score big with the potential ones. To find the right one, search on the local level first. See and analyze similar ventures like you. Research about their funding methods. See if you can get through the venture capitalists that are funding them. The Internet can be a boon for you. Use it wisely. Check out different portals. Check their reliability and get yourself some funds.

Be ready to share and decide the extent up to which you are ready. Venture capitalists when to invest their money, they will demand some kind of power in that venture. It’s reasonable for it’s their money at stake. Therefore, you need to decide what all power you are ready to share or give up. Make sure they are attractive. Also be ready for an intervention. Power will allow capitalists to intervene and even make, change or alter decisions.

The last and of the most important way to deal with a venture capitalist is to be persistent. Now, being persistent and being desperate are two different things. Venture Capitalists should be excited to listen to you. Brew that excitement. Make yourself that persistent. But don’t pester them away. Desperation will do that. Be the man of your word. Do what you say and don’t be afraid. You want to do business and so do they. Deal just like you will deal with any other. Respect them but don’t let them intimidate you. If you are looking for someone to give you funds, then they are also looking for someone to whom they can give their funds to. Make yourself and your company worthy enough.

Rest, approach a Venture Capitalist only when there are no other options. Because, once you have taken a fund, you can’t fire the investors. You will be entitled to listen to them. And you will also have to follow a time frame. Fund yourself on your own, at least as much as you can. Anyhow, they are important and famous. Mostly, you will need Venture Capitalists when you decide to make your business big. Play smart! Other than that, we, at LegalRaasta can provide you with legal solutions in raising funds for your startups.

This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software, GST Return Filing, GST Registration, Section 8 Company Registration, Nidhi Company Registration, IEC Registration, Fssai License, File ITR Online.