Process Of Sourcing For Venture Capital

Startups usually require a certain amount of money for them to invest in their ventures. Investors who see potential in such new ventures offer capital to finance them. This financing is known as venture capital. The investors who invest in such startups are referred to as venture capitalists.

Investors may see the potential of growth in such startups. They risk investing in them with the hope of better returns in the long term future. They usually take up a stake in the company by owning shares in return for their investment. This makes them financial partners in a business venture.

The first process when it comes to the sourcing of venture capital is the generation of the idea. This stage involves coming up with a business plan for a startup. A business proposal is drafted during this stage to highlight the business idea. Market size and the monetary projections are delved into here.

Strengths, weakness, opportunities, and threats that the venture may possess or face are also discussed during this stage. The management structure of the business can also be brought up to enlighten the venture capitalists how the business will be operated. This will provide the basis of whether these investors will be interested or not.

An introductory meeting follows thereafter. In this meeting, the project is discussed into finer details. A one on one meeting is ordinarily conducted here. Venture capitalists at this stage scrutinize the idea and see whether it is indeed a project that they would like to onboard.

Due diligence is the next process in the funding process. Here, business related queries are tackled into further. Evaluation of business strategies takes place at this stage. The product that is being brought into the market is also evaluated further. Market queries and how the idealists are going to deal with constraints and threats such as competition and compliance as also discussed.

Venture capitalists then offer their terms if the due diligence stage has satisfied them. During this process, terms and conditions that are pertained in the agreement are defined. These terms are contained in the term sheet and are negotiable. Individuals owning the startup and venture capitalists have to come to an agreement.

The signing of legally binding documents takes place thereafter. This is done by both parties in the agreement. Funds can thereafter be made available for investment after legal due diligence is completed.

After these agreements, venture capitalists have the power and authority to influence the venture’s decisions. This is possible since they have already invested their money. The return on investment of venture capitalists squarely depends on the growth and profitability of the company. Where the right investments where made, these investors may reap impressive returns.

However, it should be noted that these investments may lead to loss of money. This can happen when the startup does not live up to the expectations the investors had in it. Risks are made even higher with the lack of liquidity of such investments. The investors have to wait for a long time before they are able to opt out of the investment.