Early Stage Venture Capital

Arete Industries

Guide to Early Stage Venture Capital

Early stage venture capital provides funding for new businesses to rapidly expand
By Amy Hunter

Early stage venture capital firms concentrate their investments on young businesses. Venture capital firms invest significant amounts of money with the expectation that there will be a large return within 5 to 7 years.

When choosing an early stage venture capital firm, it is important to realize that you are not visiting a bank for a loan. Venture capital firms are closer to partners and will have ideas about the management and development of your company.

Some important points when choosing a venture capital firm for early stage investment:

1. The firm should regularly invest with early stage capital. Seed investing requires different skills than first or second round funding.

2. Make sure you are comfortable with the level of management the VC firm will provide. Early stage venture firms are often very hands-on in their approach to management.

3. Know your business backward and forward. There is a tremendous amount of competition for VC funding, and the money often goes to those who are the most well prepared.

Action Steps

The best contacts and resources to help you get it done

Approach early stage capital firms with a strong business plan Early-stage VC firms narrow the pool of candidates by reviewing business plans. Only after your business plan passes muster are you granted an interview.

I recommend:  If you prefer to write your business plan, the Small Business Lending Corporation offers a free online workshop. Planware has a free business plan template, and Atlas Business Solutions has a complete business planning software program.

Early-stage venture investing firms expect you to have assets in hand VC firms invest a significant amount of money, but they do not expect to be the sole financial backer of a company. Raising capital before you approach a VC firm makes your company a more attractive choice.

I recommend:  If your company is strong enough to attract venture capital financing, you can use other methods to raise funds as well. Family and friends make excellent investors. They may come in as partners and own part of your business, or they may lend you money with a repayment schedule. Get the proper paperwork from LawDepot.com or Business-in-a-Box. The Small Business Administration offers a variety of loans for businesses, whether they are just starting out or are looking to expand.

Use a matchmaking service to find the best early-stage VC firm for your company The right fit increases your chances of being chosen by a VC firm. Many VC firms specialize in particular industries. By approaching the right firm, you increase your chances of being selected.

I recommend:  Growthink offers a subscription-based database, while Go BIG Network allows you to sort through VC firms and contact them online. Find a list of venture capital firms at The National Venture Capital Association (NVCA), the trade association that represents early stage venture capital firms and others.

Tips & Tactics

Helpful advice for making the most of this Guide

• To you, the business concept or product may be the most important part of the company, but early-stage capital firms stress the importance of experienced management.
• Manage your cash flow wisely, both before and after you receive money from early-stage venture capital firms. If your early-stage funds are not handled wisely, it is very difficult to receive additional rounds of venture capital.
• Before you meet with an early-stage investment capital firm, practice your presentation and know your financial information by heart. You are dealing with experienced investors; do not try to pass off unrealistic profit expectations or downplay expenses.