Basics of Venture Capital


In today's business landscape, entrepreneurs need more support than ever! One of the biggest challenges facing start-ups today is financing their business. Most business owners of color boot-strap, but there are resources out there for us! One of those resources is venture capital.

In this article, we’ll discuss some basic info you need to know about venture capital. We’ll explore its definition, benefits, and some key factors to keep in mind to help you decide if this makes sense for you.

What is Venture Capital?

Venture capital is a form of private equity investment providing funding to early-stage, high-potential start-ups. 

Venture capital investors or venture capitalists (VCs), offer companies not only financial support, but also mentorship, and industry expertise. And in exchange for these resources, they receive an ownership stake in the company. 

The investor’s goal is to generate substantial returns on their investments when the companies they support succeed.

Benefits of Venture Capital:

Venture capital prompts innovation by giving startups the financial resources to turn up-and-coming ideas into new, strong, cutting-edge businesses. 

It’s no secret that starting a business from the ground up has its challenges, especially when it comes to finances. New entrepreneurs often need access to sufficient capital from traditional funding sources like banks. 

Unfortunately, it's common for business owners of color to resort to taking out harsh loans and utilizing their credit card balances, even if they don’t have the means to pay those balances off. 

Venture capital could be the lifeline startups need to bring their business goals to reality.

And by offering advice, mentorship, strategic guidance, and a vast professional network, investors help entrepreneurs through the many challenges that come with scaling a business. 

Brief Breakdown of The Venture Capital Process:

  1. Evaluation: Venture capitalists network with entrepreneurs, and attend pitch events & competitions to look for investment opportunities.

They review business plans, meticulously evaluating startups based on a variety of factors such as:

  • market potential
  • team capabilities
  • competitive advantage
  • Scalability, etc

If you are interested in venture capital, it is in your best interests to learn what investors are looking for. Consider how you can offer value, and put yourself in positions where you are meeting potential investors regularly.

  1. Investment: Once an investor finds a startup they like, they begin the negotiations for the investment terms. These negotiations cover topics like:
  • the amount of funding, 
  • ownership stake,
  • anticipated growth milestones, etc.

In most cases, funding is typically provided in multiple stages. And sometimes additional funding is contingent upon the startup's achievement of goals outlined by the investor.

It’s also in your best interest to do some research into how these negotiations work and learn the best negotiation practices.

  1. Strategy & Mentorship: Investors engage with the start-up's management team, providing strategic guidance and introducing entrepreneurs to their extensive network. 

Often times they become members of the board, collaborating with entrepreneurs to optimize business strategies, drive growth, and build valuable relationships with customers, clientele & potential partners.

  1. The Exit: Most, if not all venture capitalists eventually exit their investments. The most common exit strategies include:
  • initial public offerings (IPOs) 
  • acquisitions by larger companies 
  • management buyouts 



So now that you know the basics of venture capital, you have a decision to make. Does this sound like something your business needs? If so, check out this article on how to win your first pitch competition.

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