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How Do You Find Venture Capital for a Startup?

How Do You Find Venture Capital for a Startup?
Susan Guillory
Susan GuilloryUpdated May 3, 2023
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If you run a startup, you already know how expensive that endeavor can be. You’ve got a number of expenses, from research and development to payroll. At the same time, you might not have access to traditional financing options like bank loans, which often require at least two years of business history to qualify.Venture capital (VC) is a popular option for startups. It’s a way to secure the capital they need to grow, with the added benefit of bringing on experienced industry contacts for mentoring and advice.Here’s how to go about getting venture capital funding for your startup.

Research Your Venture Capital Options

A good first step in finding venture capital for a startup is to come up with a list of VCs that might be interested in the kind of deal you are offering. It’s a good idea to target firms that have a track record of investing in your industry and have funded companies similar to yours in terms of size and focus. You can come up with a list of potential candidates by doing online research, finding and following VCs on social media platforms like Twitter, going to industry events, and networking with other startups and local businesses. Another good resource is CB Insights, which offers data on active VC firms and associated industries. You may also be able to find local venture capital associations, which may offer networking opportunities.Recommended: Venture Capital vs. Private Equity: What’s the Difference?

Find the VC That's Right for Your Business

One secret to VC funding success is understanding that not every VC firm is a good fit for your business. Some specialize in certain industries, and some look for startups at a certain stage of growth. You’ll want to filter through firms you’ve uncovered in your research to find a few that are a good fit for your startup using these questions.

What’s the VC's Management Style?

When looking for investors for your startup, you’ll want to keep in mind that many venture capitalists want to be a part of your team. That may look like taking a seat on the Board of Directors or otherwise being involved in the decisions for your startup. So, it’s important to consider whether you're okay with sharing decision-making power.The benefit is that a VC can have deep industry knowledge and contacts, so you may be able to make better decisions than you could on your own.As you look at potential firms, consider what level of involvement they will likely want to have in the management of your startup, as well as what experience they have in your industry.

What Is the Firm's Current Portfolio and Preferred Industry?

To make sure a potential venture capitalist could be a good fit for your venture, it’s a good idea to look closely at their portfolio. Venture capital firms will typically include a portfolio page showing what companies they’ve funded on their websites. This can help you hone in on a firm that is already involved with startups in your space, as they’ll likely be the best equipped to help you beyond providing capital.Recommended: How Seed Money & Seed Funding Works

Does the Firm Have an Exit Strategy?

A venture capitalist’s goal is to get a return on investment. That can happen a few ways:Some VC firms prefer one of these exit strategies over another, so you need to make sure that aligns with your own vision.

Where Is the VC Located?

Given how adept we’ve become at doing business remotely, it might not matter where the VC firm is located, but if your investors expect you to fly out every month for meetings, that will dip into your profits. You might prefer to work with a local VC that you can easily access in person.

Ask for Referrals

If you’re in a startup community, you can ask other founders for referrals for venture capital firms. They can give you the nitty gritty on what it’s like to pitch them and work with them. This can also be helpful in securing an introduction to a firm, which may net better results than a cold call.

Reaching Out to Your Target VCs

Hopefully these questions have helped you narrow down your list of potential venture capitalists to a few that really aligns with your own vision for your startup. Taking on venture capital should be a partnership between your startup and the firm, and since the relationship is one that may last for years, you want it to be a good fit.Once you’re ready, you may want to draft a template email you can use (making sure to customize it for the specific firm). Include highlights of your startup’s successes, including numbers that might impress VCs.Most VC firms have partners that specialize in particular industries or niches, so make sure you address your email to the most relevant contact.Venture capitalists get many emails, so you may need to follow up a week or two after you send yours if you don’t hear back.Recommended: Pre-Seed Funding vs Seed Funding

Creating a Good Pitch

Once you get a positive response, you’ll schedule a meeting where you’ll pitch investors on your startup. This is your chance to shine, but make sure you plan and practice your pitch in advance.Experts generally recommend that your pitch deck have no more than 10 slides and take about 20 minutes to go through. Boil it down to what investors most care about:
  • Growth of your startup
  • How you plan to use the working capital 
  • Leadership’s expertise
  • Future sales projections
  • Numbers, numbers, numbers
Expect to be asked questions like how much it costs to make your product, the size of your market, and expected growth. Investors like to see that you’ve done your homework before asking them for money.You may have to pitch several VCs to find the right fit. Once you’ve received an offer, review it carefully so you understand what the investor expects in terms of being involved with your startup and how and when they will exit. Only when you feel confident with the terms (which can be negotiated) should you sign an agreement.

Other Options for Business Financing

Finding venture capital funds isn’t for the faint of heart. It can involve a lot of research and, potentially, a lot of rejection.Fortunately, this isn’t your only option for getting financing. There are many different types of small business loans for startups that may have fewer restrictions, such as time in business or credit score requirements, than a conventional or an SBA loan. While banks often require at least two years of business history, alternative online lenders typically have more flexible qualification requirements. They are also faster to fund. Interest rates tend to be higher, however.The good news is that once you’ve applied for first-time loans, the process gets easier, and you’ll start to build your business credit, which can help you qualify you for more and better offers down the line.You might also consider a business line of credit. Unlike a business loan, which gives you a lump sum of money all at once, a line of credit lets you access up to a certain limit when you need it. You only pay interest on the money you actually borrow. Once you repay what you borrow, the money is available to borrow again.A business credit card may also be useful since you can purchase supplies for your company even if you don’t have the cash on hand to cover the expense. If you can find a business credit card with a 0% promotional interest rate, it can serve as a kind of no-interest business loan.

The Takeaway

Venture capital can be a good funding option if you don’t mind giving up equity in your businesses and your startup is poised for rapid growth and a profitable IPO. However, it’s not necessarily the right funding solution for every business. If you’re interested in exploring other business funding options, Lantern by SoFi can help. You can use our fast online search tool to get a personalized small business loan option in minutes.Let Lantern help you find the right financing solution for your small business.

Frequently Asked Questions

How do you find venture capital (VC)?
What is a venture capital (VC) association?
Is venture capital the same as angel investing?
Photo credit: iStock/andresr

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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