A business idea cannot always be financed with your own funds. Other methods such as money from family and friends and development loans from banks are not always suitable for financing. In order to realize the business idea anyway, the procurement of capital within the framework of venture capital by private investors is an option.
However, the search for donors should be well planned. Because the choice of investor often sets the course for the development of the business start-up. In the following article you will find out what considerations start-ups should make and how they recognize a suitable investor.
Venture capital is a popular form of financing
There is no shortage of venture capital in this country. After all, over 19 billion dollars in venture capital was invested in start-ups last year (external link). With venture capital financing, young companies receive money to finance their business idea and in return give up shares in their company. The investors thus become co-owners of the company foundation.
The start-up is often financed in different company phases, in which the financial resources are made available as part of capital increases. Careful consideration should therefore be given to which financiers will bring business founders on board.
Find the right venture capital investor with the right tips
In addition to the large funds and a growing number of former business founders who are now investing in start-ups themselves, there are more and more state and semi-state offers. For business founders, the question now arises as to the right investor for founding a company. Certain points should be considered when searching so as not to have the wrong partner at your side when financing the business idea.
Pay attention to networks
When looking for the right investor, start-ups should first ask themselves whether it is “only” about money or also about network and expertise? Because these can sometimes be more important than quickly receiving a large sum. Therefore, founders should ask themselves which contacts the financier can bring with them. Especially in relation to the follow-up investors. Because venture capital thrives on the fact that new investors with larger investment sums are added with each round of financing. And the larger the investment sums, the rarer are the corresponding investors.
In order to find out more about the respective investor, founders can, for example, find out about the successful investments they have already made on the websites of the investors.
Investors are more than just providers of capital
Ideally, an investor not only provides the required venture capital, but also offers further support in the form of personal coaching and comprehensive expertise for start-ups. Both parties benefit from this, as there is a contact person at eye level – especially in critical situations.
Business founders should listen to their gut feeling when choosing an investor and check whether the personality of the investor suits them and the company. In addition, founders should ask themselves the following questions before deciding on an investor:
- Is the venture capitalist pursuing the same strategy?
- Can you also deal with him critically?
- Is he empathetic to my problems and concerns?
Don’t get too many investors on board
It sounds tempting to get as much money as possible from different investors to implement your own business idea. But it doesn’t make sense to have too many financiers involved in the investment either. Because start-ups often receive money from so-called business angels in the early phases. However, these usually only have limited financial resources at their disposal. Business founders who later do not manage to get a large investor on board for the business idea and have to do further financing rounds with business angels quickly have a group of 30 to 40 investors. Then it is particularly difficult for founders to keep track of things. In addition, this increases the administrative effort enormously.
Government grants can be a good alternative to venture capital
Financing the business idea with venture capital can be worthwhile for founders. Because with this financing option, large sums of money can be raised quickly in order to advance the founding of the company. But finding a suitable venture capital investor is often not that easy. And not every investor is suitable. Therefore, founders should not choose the first investor who comes along, but should research well in advance and plan the founder-venture capital relationship well. Founders usually notice how valuable this is when things don’t go as planned. And that happens in every company at some point.
However, founders should also consider that they give up a not inconsiderable part of their company when financing with venture capital. This contributes to changing shareholder relationships. Therefore, it makes sense to consider other ways of raising capital for starting a business.