Overview of Venture Capital and Private Equity Firms

Does your company need to raise venture capital? Whether it is a start-up, development stage or expansion stage company, funding of say $2,000,000 to $25,000,000 is usually not raised through Angel investors. Find a VC directory or start your own list to begin acquiring names and addresses to save you hours of valuable time.

Start your research by locating the different VC firms in your state. If a Venture Capital Company has an interest in funding your company, they will want to meet with your management team. They will also feel more comfortable funding your needs if they can keep a careful eye on their investment.

The process begins by submitting your business plan and then if there is interest, a meeting, due diligence and more due diligence. Preparation of the Business Plan is a Vital First Step in your quest for capital, so a great deal of time and effort should be spent preparing the business plan.

This process of a venture capital firm meeting with you and conducting what seems like endless due diligence, can take up to six months. Be prepared for this. During this time they will put your management team and company under a microscope, after all they are considering making a sizable investment in your company. Here are some Essential Tips for Raising Venture Capital that will increase your funding chances and help you negotiate, even before you get to the term sheet stage.

"Private Equity" seems to be the more recent name applied to venture capital firms, that also had the less desirable nickname of "Vulture Capital". Hopefully you get the idea, that with a nickname like Vulture Capital, negotiating terms with private equity firms, assuming they will fund you, is going to be no picnic. "Private Equity" also seems to be used in a generic sense to include any type of financing used by a private company. This would include: angel investors, venture capital funding, hedge funds, leveraged buyouts, bank loans, and accounts receivable financing.

Private Equity firms differ from hedge funds in that hedge funds typically invest in public companies and their investments are short term, whereas private equity firms typically invest in private companies and are investing for the long term for 3 to 5 years before they begin liquidating their investment.

Private equity firms usually manage several hundred million dollars and there are many that manage over one billion dollars. They manage money from a variety of sources such as wealthy individuals, corporations and institutions. Since they manage such large amounts of money they tend to make larger investments, but most large private equity firms, won't look at companies unless they have at least $5,000,000 in gross annual revenues.

Most Private Equity firms specialize in a certain field. Some won’t fund technology companies while others only invest in biotech. So do your research and contact only those firms that invest in companies like yours. Start by looking in your home state since interested VC firms will want to schedule one or more meetings with your management team and it makes it a little easier for them to check on the status of their investment from time to time. Preparation of the Business Plan is a Vital First Step in your quest for capital, so a great deal of time and effort should be spent preparing the business plan.

The Executive Summary is a good way to get your “story” out there to interested investors. Many of my clients send out an Executive Summary to help narrow the field of potential investors before they send out their full blown Business Plan. See why you should too.

VC firms have gotten so sophisticated over the years there are even insurance companies that cater to their specific coverage needs and requirements. See Venture Capital Insurance to learn more.