Who are Venture Capitalists
Posted by Jeff Hardy in Venture Capital
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People who provide equity capital are typically called venture capitalists. They provide funding in exchange for a percentage ownership in the corporation or for a percentage of the sales or profits. Equity capital is very expensive over the long term; however, sometimes it is the only capital you can find.
There are two kinds of venture capitalists. The first are professional venture capital firms. Unless you are looking for over $1 million in capital and have a business model that shows your enterprise growing to over $5 million in sales, it is unlikely a professional venture firm would talk to you.
The second category of venture capitalist is known as an “angel" in the industry. Angels are typically local entrepreneurs. They typically look for small ventures where they can invest amounts from $50,000 to $500,000 and where they see an opportunity to double or triple their investment within a year or two.
Angels rarely advertise. They are most often found by networking. Start by talking with your banker, your lawyer, and the folks at your local chamber of commerce or county development agency. They will usually know who the angels are in your community.
You will need a business plan and all of the financial data that you needed for bank financing, as well as financial projections for cash flow and profit and loss (P&L) for the next three years.
Unlike the professional venture capitalists, angels will often become involved in your business. Most of them consider themselves to be smart and experienced and will want to share their knowledge with you as well as watch over their investment. Depending on just how smart he or she is and the angel’s personality, this can be a blessing or a curse.
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