Most budding entrepreneurs cite lack of funding for their ventures as the biggest stumbling block to being business-owners.
Fortunately, venture capitalists and private equity investors are at hand to assist and walk side by side with entrepreneurs as they grow their businesses.
Venture capital (VC) is finance that is provided by investors to small, early-stage and emerging companies which are believed to have high growth potential in terms of their number of employees and/or annual revenue. VC firms invest in these early-stage companies in exchange for an ownership stake and usually provide growth capital, rather than seed capital. Unlike banks, they don’t charge interest or capital repayments.
The benefits of VC firms to entrepreneurs include having access to experts who can serve on the organisation’s board and provide strategic input and direction to the business, while also providing access to a network of experts in various business fields and overseeing proper governance.
Before investing, VCs want to see that you’ve tested your idea to ensure it has market traction. Due to the high-risk profile of the asset class, only one in 100 applications receives investments. As such, entrepreneurs need to stand out in terms of their product offering and business model to attract funding.
According to the Southern African Venture Capital and Private Equity Association, these are the key requirements for entrepreneurs before applying for VC investments:
- The problem the business is solving and size and segmentation of its specific addressable market must be realistic
- The entrepreneur must be the “right jockey”, with a clear vision and passion for the business
- A clear execution strategy to achieve the business’s objectives
- Clarity on how the business will make commercial returns
- The right composition of the current and future team, including their skills and experience in the chosen areas of the business
- Clarity on the operational systems and processes to enable the business to execute its plans
- Clarity on what the funds being raised will be utilised for in the business
- Willingness to receive support and input from the investors
- A clear exit strategy for all investors