{"id":202586,"date":"2020-02-14T15:15:36","date_gmt":"2020-02-14T12:15:36","guid":{"rendered":"http:\/\/ww-vb.mine.nu\/w108\/whats-venture-capital-and-why-does-it-matter-for-startups\/"},"modified":"2020-02-14T15:15:36","modified_gmt":"2020-02-14T12:15:36","slug":"whats-venture-capital-and-why-does-it-matter-for-startups","status":"publish","type":"post","link":"https:\/\/hameed.nwar.uk\/sa\/whats-venture-capital-and-why-does-it-matter-for-startups\/","title":{"rendered":"What\u2019s venture capital and why does it matter for startups?"},"content":{"rendered":"

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The term \u2018venture capital<\/span>\u2018<\/span><\/span>\u00a0is often thrown about in the tech startup world, but do you know what it means and how it works? Could you explain it to people<\/span><\/span><\/span> at a dinner party?<\/p>\n

If the answer to these questions<\/span><\/span> is \u2018no,\u2019 don\u2019t worry because Growth Quarters has you covered.<\/p>\n

The first thing you need to know is that venture capital<\/span> is a type of private equity<\/span> \u2014 venture capital<\/span> investors<\/span> put peoples<\/span><\/span>\u2018 money into a business<\/span> and in so doing get a stake in the company<\/span> they\u2019ve backed.<\/p>\n

So as a founder<\/span> or entrepreneur<\/span>, if you take venture capital<\/span> funding<\/span>, you\u2019ll also inevitably be giving up equity<\/span> in your business<\/span> depending on the amount raised.<\/p>\n

This means the investor<\/span>, or investors<\/span>, will own a stake in your company<\/span>, have a say in the business<\/span>, and will often get a seat<\/span><\/span> on your board.<\/p>\n

Venture capital<\/span> is usually provided to startups<\/span> showing long<\/span><\/span>-term growth potential or those with a good track record.<\/p>\n

Where does the money come from?<\/h2>\n

A venture capital<\/span><\/span><\/span> fund<\/span><\/span> is a pooled investment vehicle<\/span><\/span><\/span>. This means that the money deployed by a VC firm typically comes from institutional investors<\/span><\/span>, corporations, or wealthy individuals.<\/p>\n

Investing in startups<\/span><\/span> is risky. In fact, it\u2019s sometimes estimated that three out of every four venture-backed startups fail, so a VC has to make sure that those that do\u00a0succeed cover the losses of those that fail.<\/p>\n

Venture capital<\/span><\/span><\/span> investors<\/span><\/span><\/span> spend other peoples<\/span><\/span><\/span><\/span>\u2018 money and as such have to deliver healthy returns to their own investors<\/span><\/span><\/span>.<\/p>\n

\"venture
<\/a>A simple way to depict how money flows between wealthy individuals, VCs, and startups<\/figcaption><\/figure>\n

The different stages<\/h2>\n

The amount of the venture capital<\/span> raised varies greatly depending on the stage a startup<\/span> is at.<\/p>\n

So if you\u2019re reading up on funding<\/span> it\u2019s important to familiarize yourself with the most common funding<\/span> stages:<\/p>\n

Seed<\/strong>: The earliest stage of venture capital<\/span> funding<\/span>. They are usually closed by early-stage startups<\/span> and the cash<\/span><\/span> is usually used to get the business<\/span> started.<\/p>\n

Series A<\/strong>: Startups raising at this stage usually have an established product<\/span><\/span>, market<\/span><\/span> fit, and a rising customer base.<\/p>\n

Series B<\/strong>: Rounds at this level are usually closed by scaleups. At this stage, the company<\/span> should have some revenue<\/span><\/span> in select markets<\/span><\/span> and should be looking to expand operations<\/span><\/span>.<\/p>\n

Series C and beyond<\/strong>: The term \u2018startup<\/span>\u2018 becomes a little redundant at this stage. Companies<\/span> going for this level of funding<\/span> are usually established and likely operating on a global scale<\/span><\/span> with the prospect of being acquired or going public becoming increasingly plausible.<\/p>\n

What you need to remember<\/h2>\n

Venture capital funding<\/span> is not really structured to be a long-term investment, meaning most investors<\/span> \u2014 whether they are angels<\/span><\/span> or private equity funds \u2014 want to exit their investments after five or seven years.<\/p>\n

This means they\u2019ll want to either sell their shares<\/span><\/span> to another investor<\/span> or get a sizeable exit through an IPO<\/span><\/span>.<\/p>\n

If a VC decides to invest in your startup<\/span>, they may release all their funds at once or hold back and give them to you over a specific amount of time.<\/p>\n

Term sheets (bullet-points outlining your agreement with the VC)\u00a0may also include specific clauses about your startup meeting certain goals\u00a0before you can raise more capital.<\/p>\n

Venture capital<\/span><\/span> is designed to help ambitious companies<\/span> scale<\/span><\/span> but it\u2019s not the only route to success \u2014 and this aggressive type of\u00a0growth<\/span><\/span> can come at a price<\/span><\/span>.\u00a0So make sure to educate yourself on all the possibilities available to your startup<\/span> before making a decision.<\/p>\n<\/div>\n