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3Si invests in breakthrough innovations within early-stage ventures that can disrupt markets. We build our portfolio based on compelling people, transformative ideas, significant intellectual property, deep market understanding, and the opportunity for capital efficiency and leverage. 

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Venture Capital Explained

July 14, 2017

 

If you're starting a business and you don't have access to capital markets, you will almost certainly need to seek venture capital (VC), which is finance provided by wealthy investors who believe that your business has long-term growth potential.  

 

 

Which Stages Draw the Most VC Investment?

 

  1. Seed - 2%

  2. Early stage - 34%

  3. Expansion - 37%

  4. Later stage - 27%

 

Which Industries Draw the Most VC Investment?

 

  1. Software - 40%

  2. Biotechnology - 13%

  3. Consumer products/servcies - 8%

  4. Media & entertainment - 8%

  5. IT services - 7%

 

How Does the Venture Capital Process Work?

 

  1. The entrepreneur submits his/her business plan to a VC firm.

  2. The VC may reject the proposal, but if they are interested, they will spend time analyzing the business plan in detail before making a further decsion.

  3. If the VC is still interested at this point, they will pledge an investment in exchange for a defined percentage share in the entrepreneur's business.  

  4. The investor will then take an active role within the business and ensure that it is meeting set targets before it receives another round of capital.  

  5. After 4-6 years, the investor exits the business via an acquisition, merger or initial public offering.  

 

The Venture Capital Process Usually Involved 4 Parties. 

 

  1. Entrepreneurs - who need funding to finance their business.  

  2. Private Investors - who seek high returns for the capital they are providing. 

  3. Investment Bankers - who need companies to sell.  

  4. Venture Capitalist - who make money for themselves by providing a market for the other 3 parties in the VC process.  

 

What Investors Will Want to See From An Entrepreneur.

 

  1. Targeting a large, lucrative market.  

  2. A product that serves a sizeable market need.  

  3. An idea with clear, continual growth potential.  

  4. Outside money to scale.

  5. A balance between being decisive and also willing to take on board the ideas of others.  

  6. A sense of chemistry between investor and entrepreneur.  

  7. A dedicated, unified, ambitious team capable of growing the business.  

  8. Evidence of a notable advantage over competitors. 

  9. Evidence of traction for the business idea.  

 

Advantages of Seeking Venture Capital. 

 

  1. Opportunity for quicker business expansion.

  2. No obligation to repay VCs. 

  3. Access t the business networks and expertise of VCs. 

  4. Means of job creation 

  5. Provision of human resource consultants to hire the best staff for your business.  

  6. VCs are almost always trustworthy due to supervison from regulatory bodies.  

 

Disadvantages of Seeking Venture Capital.  

 

  1. Relinquishing of a percentage of company ownership.

  2. Restrictions in the composition of your management team, staff salaries and other factors.  

  3. Pressure from the VC to recoup their investment within 3-5 years.  

  4. Potential disagreements between entrepreneur and VC.

  5. Funds usually released in stages rather than upfront.  

 

Mistakes to Aviod When Pitching to Venture Capitalists. 

 

  1. Outreaching with the same, generic pitch to a wide range of VCs without knowing anything in particular about them.  

  2. Making your presentation overly long or boring.  

  3. Failing to address questions from a VC during a presentation.  

  4. Being unrealistic in citing your business goals.  

  5. Failing to identify any long-term vision for your business idea.  

  6. Putting a defined value on your business before the VC discusses it with you in conversation.  

 

 

 

 

 

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