“Venture capital is the timely alignment of foresight with the upside.”
If you have even attended any of the leadership-focused events, conferences, and panel discussions you must have figured the common themes most of them must have reflected upon. They are talent, networking, and the subject of this article, venture capital. From time and time, there have been intense debates and discussions on venture capitalism such as why is it so important? And how you can build a leadership team that attracts venture capital? So, let’s start with the obvious.
What is Venture Capital?
Venture Capital (VC) is a form of investment an investor makes, especially of startups, on companies they believe can attain long term growth and success. Here the person or the company that invests are called the venture capitalists while the capital is known as the venture capital.
Importance of Venture Capital
Venture capital is the funding generated by an entrepreneur or people to start their startup business. It is important because the cost that is involved in raising a startup can be a lot and too risky. So, people approach the venture capitalists to collect funding for their business and in return, they provide business equity to the venture capitalists. Its importance can further be understood by the different stages that are involved in venture capital funding. These stages can be seen below
This is the first and foremost stage of venture capital funding. These funding are usually closed by the early stages of startups where the capital goes into getting the business started.
This is the second stage of venture capital funding where startups looking for venture capital have an established product, market, and a growing customer base.
In this third stage of venture capital funding, the startups are already in the phase of expansion and are looking to have funding to solidify their footsteps on the current markets they are working in.
Series C and Beyond:
When a startup reaches this stage, it can no longer be considered a startup and by now it must have become a well established company or organization. Here the companies seek a series C and beyond funding to take their business to a global level.
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Building a Leadership Team that Attracts Venture Capital
By now it must be clear what venture capital is and why it is important? However, getting a venture capitalist onboard is the most challenging part of the whole process. Due to this, a lot of emphasis must be paid to leadership. A leadership that is well aware of its purpose and already has a laid-out plan of execution will likely have an easier time. However, inexperienced leaders and startups need to be careful to not rub the venture capitalists in the wrong way. For this, leaders must focus on building a team that can comfortably attract venture capital for their startup. Here are some of the key points to remember while building leadership that attracts venture capital.
Always Put the Right Person in Charge
It has often been seen that the tech inventor, founder, and co-founder are not always the right person to lead your team and the company. This is because somewhere they don’t have the expertise for the role irrespective of their contribution to the company. Hence, it is important that as a tech inventor, founder, and co-founder, you must be completely honest with yourself and evaluate your strengths and weaknesses. If you find that someone in your team or outside of it is a better fit for the role then lead that person to lead your team. Even the VCs invest more in the team and the person leading it than the tech inventor and founders of it. Therefore, to give your startup the best chance at attracting VCs then give more importance to your building than your role in it.
Have the Pitch Down
Even when you recruit talents for your company or startup, you have a prepared set of questions to test the recruit's ability. This set of questions forms the pitch that helps you in the recruiting process. Attracting VCs is not much different than hiring a talent. Here, you have to create a pitch to convince the VCs to invest in your company or startup. So, ensure that you have your pitch down to the “T.” Do mock runs to prepare for the type of questions you may get asked by your probable VCs. Also, make sure that you have covered all the important nitty-gritty details about your company or startup. Furthermore, be confident of your pitch and product as more than anything else confidence plays a major important role in convincing the VCs to invest in your company.
Make your Network Count
If there is one thing that can be considered as the ultimate saving grace in this technology-driven era, it has to be networking. The power of networking has been well depicted in all spheres of the world. Only with networking, you can give your company or startup the best chance at becoming the next big thing. Even the recent, Gamestop incident is proof. Hence, if you have a well built networking then don’t forget to share about it with VCs you have approached. As they might very well say yes to your project based only on your strength of networking.
Never be Scared to Hire Talents Before Raising Funds
A lot of startups take the conventional approach when it comes to hiring people. They avoid hiring most of the time till they have a VC on board. Now, this is an understandable approach as it safeguards the possibility of incurring excessive loss in the case, the business doesn’t take flight. However, there is another side to this approach that VCs are mostly interested in. They consider the companies taking this approach to be mostly unworthy of their investments. This is because they think that the company is full of insecurity and doesn’t have in it to take the risk or invest in the right talents.
This is a lesson to be remembered by every leader who is building a team to attract Venture Capitals. Never be scared of taking the risk. Believe in your potential. Also, don’t wait for the VCs to start working on your startup. Invest in people if that is what the situation demands. VCs will come on board eventually.
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