What is a Venture Capital Raise?
A venture capital (VC) raise is the process of startups selling a percentage of their business to venture capital investors in exchange for capital. This helps them to grow and expand.
VC investors usually have certain requirements companies need to meet before the investment can go through.
Read the rest of this article to explore aspects of a VC capital raise, such as:
- Their pros and cons.
- How to pitch to a VC investor.
- How to know if a company can raise VC.
- The typical stages of the VC raise process.
- How a lawyer can help you with a VC raise.
- Where to find a professional lawyer for assistance.
What are Pros and Cons of VC Raise?
There are advantages and potential drawbacks of raising money with venture capital.
Pros
- VC firms provide significant funding. This enables the company to access more capital they need, which is particularly appealing to startups.
- VCs are experienced investors. This means that they can offer companies their expertise and skills to help them grow.
- VCs have strong networks. It’s common for VC companies to be connected with valuable people who could help the company in the future, such as by acquiring other investors.
- VCs can enhance a company’s reputation. If you’re backed by a specialized, reputable VC firm, this can make your company more appealing to other investors.
Cons
- VCs might seek greater control. This could cause companies to have to surrender control, such as in the form of voting rights or board seats.
- VC funding can include strong pressure. It’s common for startup companies supported by VCs to be expected to grow very rapidly. This could result in misaligned goals.
- VCs want a medium-term exit. They might put pressure on companies to go public or sell.
- VCs aren’t right for every company. For example, if you want to grow fast, a VC’s capital and expertise can be beneficial. If you don’t want to expand quickly, other types of investors might be more suitable.
How Should a Company Pitch to a Venture Capital Investor?
Since many VC investors are specialized with expertise, a company wanting to pitch to them should provide evidence that their company has growth potential and a team who is skilled to help it achieve its goals.
During discussions or pitches, it's important to be clear and concise, while discussing the business vision with data which supports it.
You should also have all your financial and other documents in order. If these are missing or they’re unclear, it can ruin the deal. Having everything you need prepared early on can also ensure that the investor’s due diligence phase later on will be successful.
How Do You Know if You Can Raise Venture Capital?
To increase your success with VC investors, there are some boxes to tick.
- Your business should be a corporation. VCs prefer corporation structures because of their ability to scale.
- You should have a strong business story. During your pitch to VC investors, you want to have an exciting, passionate story that appeals to them.
- You should be ready for growth. You need to ensure that your business goals include expanding in a rapid way.
What are the Common Venture Capital Raise Stages?
There are various steps involved in the venture capital raise process. These include the following:
- Conducting due diligence. It’s not just VC investors who should conduct due diligence. Companies should take the time to research the VC firms and check that their goals are aligned.
- Networking. If your contacts have worked with a VC firm before, this is beneficial as it helps you to connect with them.
- Building a pitch deck. This is a crucial element of your VC raise process. Include information about your company team, strategy, and how you plan on solving a problem with your product/service.
- Screening. Once you have sent your pitch deck, the VC firm might screen your company. This could include asking you questions.
- In-depth screening process. If the VC investor wants to conduct due diligence, this is a sign that they are interested in your company. They will do a deeper dive in your business financials, legal documents, and more.
- Negotiations. The VC investor creates a term sheet with key terms of the investment, its valuation, anti-dilution provisions, and more. You can, and should, negotiate this.
- Finalizing the agreement. When you and the investor agree on all terms, you will draft legal documents, such as a purchase agreement.
- Transferring the funds. When documents have been drafted, funds are transferred so that the investment can close.
How Can a Lawyer Help You with a Venture Capital Raise?
Working with a lawyer is advantageous if you’re interested in a VC capital raise. Here are some ways in which they will help you.
- They’ll draft important documents to ensure all protections and clauses are balanced.
- They’ll collect essential legal documents you will need for the due diligence phase, to prevent delays.
- They’ll check that the investment and all its documents are legally compliant.
- They’ll help you negotiate terms, such as in the term sheet, so that it’s balanced and fair.
- They’ll coordinate the closing process.
Where to Find a Lawyer for a Venture Capital Raise
If you need a lawyer to guide you with the complexities of a venture capital raise, you can find one on ContractsCounsel. As one of the largest online legal marketplaces connecting clients with vetted lawyers, you can easily find a professional lawyer to help you.
To streamline the process, you can search for lawyers according to data provided on the ContractsCounsel platform, such as their expertise, education, years of experience, previous completed projects, and client ratings.
You can also request a lawyer on the platform to draft or review your venture capital raise documents. Here’s how:
- Go to the ContractsCounsel marketplace.
- Post your request for an agreement drafting or review.
- Receive lawyer bids. Lawyers on the platform will send you multiple bids you can review.
- Review lawyer profiles. You can research the lawyers according to data on the platform, such as their expertise, years of experience, client reviews, and previous projects they’ve completed.
- Choose a lawyer who matches your requirements and hire them for the project.
