Venture capital is one of entrepreneurs’ most sought-after financing methods. This is especially true in 2023 since bank loans are subject to higher interest rates. With that being said, the process of attaining VC is often long and complex, so it’s wise to have a solid understanding of it before jumping in.

1. What are venture capital investors?

Venture capital is finance provided to businesses — typically startups and SMBs — that provides the investor with a stake in the business, also known as equity. These investors typically aim to see a positive return on their investment over a number of years. This differs from debt financing, which you might get from a bank.

Venture capital firms, like Australia’s Blackbird or Singapore’s Jungle Ventures, raise funds from high net worth individuals, investment banks, pension funds and other financial institutions which they then use to invest in a business. Typically the venture capitalists working in these firms come from a finance background, but many are also successful entrepreneurs in their own right who have decided to use the windfall from a previous exit (sale of business) to invest in similarly high-growth companies.

2. Is venture capital funding right for my business?

The right moment to approach VCs for investment is different for each company. It’s possible to attract a VC partner with only an idea, but the majority of deals are closed after a business has three concrete items:

  • A founding team
  • A minimum viable product (MVP)
  • Customers

VC is geared toward companies that are designed to grow quickly and have high startup costs. For the best chance of scoring venture capital funding, you need a disruptive idea — ideally in an industry where VCs tend to invest heavily, like software — and an impressive management team.

3. How do I find the right venture capital firm for my business?

All venture capital firms have a specific focus regarding the types of companies they fund: They might invest mainly in software, consumer products, fintech, green technologies, or any other category of business. And each firm focuses on different stages of investment (seed, early-stage, Series A, Series B, Series C and so forth). Thus, the first step in reaching out to VCs is research.

The below resources can help you build a target list of venture capital firms in your market:

Once you’ve got a target list of VCs to approach, it’s time to set up meetings. You have two opportunities to make connections: an intro from someone in your network or a cold email to a VC partner.

4. How do I get funding from a venture capital fund?

Whether you are introduced to a VC through a warm lead, or you approach them off a cold call, a solid pitch deck will be your calling card and the starting point of most introductory meetings if you’re hoping to raise any money, particularly as rising inflation makes borrowing funds more expensive. Pitch provides examples of 15 pitch decks from successful startups such as Stytch, Nylas and Softr, some of which were used for pre-seed capital raising rounds.

A pitch deck is a presentation that provides an overview of your business. The deck can share insights about your product or service, business model, market opportunity, company funding needs and your management team.

A pitch deck should be short, concise and cover the following elements:

  • Management team
  • Market pain point and solution
  • Company progress
  • Investment amount
  • Company financials

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5. How do I understand the term sheet?

A term sheet “sets out the terms agreed between the startup and the investors prior to preparing the formal agreements,” as per Singapore law firm Kindrik Partners. Alternatively, online legal platform Lawpath refers to it as a precursor document which you can use during the negotiation stages. A term sheet is usually the step before the execution of a legally binding contract, Lawpath notes.

There are three main sections of a terms sheet:

  • The funding section lays out the financial guidelines of the proposed investment. It outlines how much money the VC firm is offering to invest and what it wants from your company in return.
  • The main purpose of the corporate governance section is to define the distribution of power between founders and investors as it relates to company decisions.
  • The liquidation and exit section of describes what will happen to investors and shareholders if your company is liquidated, dissolved or sold. It defines who gets paid first and highlights any particular preferences given to investors.

6. How do I secure the deal?

As a founder, you can increase your chances of closing a deal with VCs by preparing well for due diligence – the process by which potential investors gather and verify information before the deal is done. You can also get familiar with the reasons that deals often go awry and take proactive steps to encourage a close.

The final stage of a VC funding deal is the time to find alignment across your internal teams, the VC firm and your legal advisors. During this time, founders should quickly follow through on commitments to investors and provide accurate information about their companies.