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How Venture Capital Works

How Venture Capital Works

There is a point in the lifespan of every company where a decision must be made: seek funding or sacrifice growth. For those of us who are looking to stay in the game, sacrificing growth is not an option. It can mean the difference between whether you sink or swim.

This leads many to venture capital financing as a potential solution.

VC is an innovative fied that offers clients so much more than finance alone. Through a VC firm, startup companies and growing corporations alike will receive not only funding, but valuable guidance and networking which is integra to the longer-term health of their brand.

Interested in learning more? See how venture capital works in the article below.

Why VCs Invest

An important aspect of understanding why venture capital funds work is understanding the incentive behind a company whose main business model is lending out money. The answer rests in the symbiotic nature between VCs and the emerging companies they help support.

VCs make their returns by exchanging funding for a percentage of ownership in the company they chose to invest in. This is like buying a new stock at a good price and going it trades higher as time goes on. The better the company performs, the greater profit the VC receives.

VC, when done right, creates an environment where everyone wins.

How VCs Support an Environment for Growth

Venture capital firms look for talent to invest in at every turn. When they find it, they want to make sure their proteges experience the greatest level of success. As their reliance on the client is equal to the client’s reliance on them, this incentivises the VC to help their clients in every way possible. This includes more than funding alone.

Thus, in addition to funding, the purpose of an efficient VC is to build a client network, provide guidance to businesses owners in their field, and even offer small businesses the power of a fully developed management team and market research department. Taken together, these factors can greatly increase the chances of success in a relatively high risk game.

Who VCs Fund

Venture capitalists fund any number of businesses at all different stages of development. These range from silicon valley tech startups all the way to service based corporations such as Lyft or Postmates.

However, just because a VC can fund any type of company does not mean that all VC companies are right for your needs. Finding the right VC for your niche and your company size is just as important as the level of funding you receive.

This is related back to the idea of symbiosis between a VC company and the businesses they support. If you don’t work with an investor who knows your audience, understands your product or service, or understands how to work with your company at the stage it’s at, they will not be able to give you the resources you need for success.

As such, if you are going to the venture funded route, make sure that you and your funding company (or even angel investor) are a good match for one another. Your business and their pocketbook will thank you for it later.

What Stages do VCs Fund

This leaves us with the final element of VC funding: the stage audience they most typically fund.

While it’s unusual for seed stage companies to look at venture capitalist firms, it’s not much further into the early stages of company development that they thought crosses their mind. As such, we wanted to give a quick run-down of the different stages of funding in existence and where you are most likely to see venture capitalists within this hierarchy.

  1. Pre-Seed Funding
    Phase: Startup
    Company Worth: $10-100 Thousand
    Investment Amount: $1 Million or Less
    Common Investors: Angel Investors, Personal Funds, Donations
  2. Seed Funding
    Phase: Product development, skeleton teams
    Company Worth: $3-6 Million
    Investment Amount: $1.7 Million
    Common Investors: Angel Investors, VCs
  3. Series A Funding
    Phase: Boosting Sales
    Company Worth:$10-15 Million
    Investment Amount: $10.5 Million
    Common Investors: “Super” Angels, VCs
  4. Series B Funding
    Phase: Scaling and expansion
    Company Worth: $30-60 Million
    Investment Amount: $25-30 Million
    Common Investors: VCs
  5. Series C+
    Phase: Well established and looking to go public
    Company Worth: $100-120+ Million
    Investment Amount: $50 Million
    Common Investors: Hedge Funds, Investment Banks, Private Equity Funds

While the above is just a bare-bones overview of different business stages, if you are interested in learning more we wrote an article here for further reading.

Working With Funding Experts

As a funding company that writes about funding, we speak from a place of experience. We are a team of entrepreneurs who take all we have learned growing our own businesses and using it to help others grow theirs.

At RevTek, we take qualifying companies and help them reach their expansion goals by giving them the financial support where it’s most needed. With a full staff of experienced entrepreneurs, we can help businesses assess their strengths, weaknesses, and help them refine and achieve their goals.

To begin the conversation about how to take your business to the next level, contact us at (480) 332-0399 to schedule an appointment.

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