As an early stage startup, you might be wondering what venture capital startup funding is all about.
Here’s the lowdown from our managing partner, Remco Marcelis, who spent four years as a venture capital (VC) fund investment manager before co-founding Standard Ledger.
Where does the money come from?
Venture capital firms are professional managers who run a fund on behalf of their investors.
Unlike angel investors, they’re not investing their own funds. In fact, the investment funds behind VCs are mostly from a very small allocation by superannuation funds.
And VCs have to raise their own funds before they can invest them into startups. To give you an idea of how much money we’re talking about, Australian VC firms raised $1.32 billion in the 2016-17 financial year.
What stage do VCs invest in startups?
While VCs sometimes invest in seed rounds for early stage startup companies, they mostly prefer to invest larger sums of money after the seed stage to justify their effort involved.
To break it down:
- Seed stage – typically $100,000-$250,000
- Early and mid-late stage investments – $500,000+ (VCs usually prefer to come in at this level)
How do you find a VC firm?
Go to the industry group – AVCAL’s – website for a full list of firms for venture capital startup funding. You might have already heard of some of the leading names in Australia, such as Rampersand, Right Click Capital, Blackbird Ventures, Bluesky Funds and SquarePeg Capital.
When you’re zeroing in on a fund for venture capital startup funding, take the time to:
- Understand what sectors they invest in, and any sweet spots (e.g. artificial intelligence, medtech etc)
- Figure out what stage they usually invest in (e.g. seed, early or mid-late?)
- Find out if they’re already fully committed or if they have money to spend. This means you need to track them, bearing in mind that they typically operate within a 10 year cycle involving:
– Years 1-4: investing in startups
– Years 4-10: working with their portfolio companies towards exit
– Year 7-10: returning funds to their own investors and doing their own fundraising for the next cycle
How do you contact a VC firm?
Like angel investors, VCs are much more receptive to being contacted through someone they know.
So you’ll need to network and find someone who knows the VC you want to contact. It might be your accountant (there, we said it), your lawyer or other startup founders the fund has invested in.
How do you pitch for venture capital startup funding?
The short answer is: quickly. The long answer is: Quickly and brilliantly.
Smartarse comments aside, VCs are notoriously quick to judge so make sure you have these things ready as soon as you start networking because you never know when your efforts might pay off:
- Your elevator pitch (your one-minute spiel about what your business does, covering two or three unique things about it)
- A standalone 1-2 page pitch ready to email
- A pitch deck ready to run through face to face
- A firm idea of your “Ask” – ie your startup valuation
Don’t go! I have more funding questions …
And remember that Venture capital startup funding is just one piece of the funding puzzle. To help you find the other pieces, we have put together a free ebook called: The Startup Founder’s Guide to Funding.
It’s a 15-minute read, which will save you a lot of confusion and online searches. If you can’t see a download pop up on this page, just email us and we’ll send it straight to you.
Get in touch if you have any questions along the way. Otherwise, go well!
Pic by Tim Gouw on pexels.com