A major roadblock for small businesses that are trying to expand is finding where to turn to access capital.
“Trying to access capital for your business is completely different than attempting to access a loan for personal needs such as a mortgage or a line of credit,” says Mark Hanrahan of Urbandale Iowa. If you are interested in applying for capital, things to take into consideration before you approach someone are cash flow, growth projections and your personal comfort level in sharing decision making and power with others.
The difference between financing your business with venture capital compared to any other method is that venture capitalists (VC) typically receive equity and take on an active role in within the company. This is one of the hardest things for small business owners who are looking for funding to accept. Most often, entrepreneurs are very attached to their business and struggle with giving power to outsiders. “The benefits of getting involved with an early venture capitalist may outweigh the complications, depending on the individual and business involved,” says Mark Hanrahan.
If your company is a rapidly growing enterprise and you’re willing to share responsibilities with others, a venture capital investment may be an option for your business.
The first step to approaching a VC is understanding the whole process. As mentioned above, when business owners make a collaboration with venture capitalists they allow the VC to take an active position within the company. This means that the small business owner could lose having total control over the company’s decision making and overall direction. This is one of the toughest aspects of collaborating with VC’s as it could potentially lead companies in a different direction than the original plan. “If you’re interested in venture capital, it’s important to come to terms with this possibility,” says Mark Hanrahan.
Next, it’s important to look into VC’s in your industry and do your research before you move forward with a business proposal. After you find a potential fit for a collaboration and have provided them with your information you play the waiting game. During this time the VC will thoroughly examine your company profile and decide whether or not you are a match for them.
“Seeing as venture capital investors take on an active role within your company, try thinking of them as teammates rather than just a source of money” – Mark Hanrahan.
If you make a connection with a firm that has a good-standing reputation for business-growth and increasing revenue for others, be confident in their advice and know that your growth means theirs as well. Knowing that they are on your side can be a relief from the concerns of sharing responsibilities with them. Remember that teaming up with a VC firm will also provide you with great advice that you may have otherwise been missing out on.
The years of experience and networking that you will obtain from a VC collaboration could change your business and your life for the better, and most companies who have approached venture capital firms will tell you that it’s been a great help for their businesses.