How to Get Venture Funding, page 2

What Is Venture Funding?

Venture funding is more than “just money.” Venture funding is a professional investment made by a professional organization—the venture capitalist. (The term VC can be used to refer to either a venture capital firm or an important individual venture capitalist, usually a member of a VC firm.)

Venture funding represents a validation and seal of approval. The VC has performed a due diligence review and passed positively on your idea, organization and business prospects.

Alas, some strings are usually attached to this good news. The VC post-funding will own a substantial portion of your company. In addition, the VC, as a professional investor in early-stage businesses, needs to make sure that its own interests are protected: the VC may take substantial control of your company. Down the road, the VC may compel decisions—such as shutting down or selling the business—that would not be the decisions you would have made.

Weighed against that, however, are nonfinancial benefits that many VCs may provide: experience, intelligent advice, good connections, help with recruiting and so on.

In other words, getting venture funded is a major event in the life of a young company. It is not for all businesses—many successful businesses neither seek nor obtain venture funding. (For more on deciding whether you should go after venture funding, see “Who Should Seek VC Funding?” later in this briefing.)

To summarize, venture funding is financing obtained in exchange for equity made by a professional venture capital organization. Ideally, the process of obtaining venture funding helps create the context for professionally managed emerging businesses.

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