As we have already mentioned, private equity funds are very professionalized investors. Therefore, if you are going to approach them, it will be convenient that you prepare yourself in a very professional way. For this, we suggest a series of tips that will help you to prepare your proposal
- Locate funds that have proven to be interested in investing in your sector through investments in other companies.
- It is advisable to have previously had the financial backing of your circle of acquaintances (Family, Fools and Friends) and, if possible, of a business angel who may even be the one to introduce you to the venture capital fund.
- Don’t burn your ships before their time, you must have a certain track record as a company before approaching a venture capital fund. And that means above all sales.
- Prepare a very professional, detailed and well-synthesized business plan that builds on the experience and business results achieved and establishes a solid growth plan.
- Emphasize in your plan and in your presentations the value proposition, the innovation you bring and the marketing plan that will enable the desired expansion and growth.
- Analyze the role you want to offer the investment fund in your company’s decision making and on your board of directors.
- Design an attractive exit plan for the investment fund, if possible based on the knowledge of the type of operations that the fund you are targeting is interested in.
- If you have no previous experience it may be convenient to hire the services of a professional fundraising expert. This type of experts usually charge a fixed amount initially and then a variable amount depending on the financing obtained. But above all they can help you to prepare very well the business plan, the exit plan and the interviews to be carried out.
Advantages of Venture Capital
- The project or the company and its management team are the guarantee, i.e. no collateral is required.
- Venture capital funds provide access to considerable amounts of money (from half a million euros to several million euros or from 150,000 euros in the case of public venture capital) that provide the necessary financial stability to face an expansion process with guarantees.
- Support from entities with extensive business experience, generally specialized in a specific sector, which strengthens the beneficiary company both in terms of contacts and management knowledge and experience.
- The support of a venture capital fund to a project brings not only financing, but also prestige and credibility, having passed the filter of getting the support of a fund of this type.
Disadvantages of Venture Capital
- Private venture capital funds usually require a presence on the board of directors and in the company’s strategic decision-making, which they can influence to a great extent. They are not usually involved in the day-to-day management, but it is clear that this type of fund means a loss of freedom for the entrepreneur.
- As with business angels, due to the high investment risk, they usually demand a high return on investment and results in the medium term, which cannot always be assured. To this end, they may require the signing of contracts that may sometimes prioritize their interests over those of the financed project.
- They are intended to be short-lived and clearly temporary, which can sometimes clash with the interests of the promoter group.
- reference for development capital projects over seed capital, where the risk is higher. For this reason, it is easier to find bets for seed capital among funds promoted or participated by the administration than those that operate entirely privately.
- The exit of the private equity fund sometimes generates friction due to the possible difference of criteria in the valuation of the participations.
- In the case of participating loans, it will be necessary to pay interest periodically as in any other loan, which may entail a considerable cost if the company does not achieve its commercial objectives.