Finding a funder for your start-up is not easy. Most traditional funders like banks and the government usually fund more established businesses. However, all is not doom and gloom, you can get funding for your start-up by trying venture capital (VC) funding.
Venture capital funding is provided by venture capitalists. Venture capital funding is financing that is given to a business in its start-up and early growth phases. This funding is given to businesses with high-growth potential.
When you receive VC funding, you can use it for developing your product, testing it, hiring the right people, and launching your product quickly. Sometimes, you can use the funds to access new markets or to push user acquisition.
In this article, we look at venture capital funding, how it works and the best platforms to get VC funding.
How Does VC Funding Work?
VC funding usually begins with an introduction between you and the investor. During this introductory meeting, you will pitch your business’ purpose and why it’s worth investing in. To connect with a VC funder, you can go through popular platforms, VC events or industry-specific events.
Before your meeting, you will need to research the VC firm or the venture capitalist. This will help you figure out how the company works and what kind of investing they do. It will also help you see the success stories of their previous funding candidates.
During your pitch, you will be asked to share your pitch deck. A pitch deck is a presentation (usually PowerPoint or PDF) that is used to explain your start-up idea to the potential VC investor(s). Your pitch deck will provide information on your business such as the monetisation model, scalability and a viable exit strategy.
If you are successful during the pitch phase, the potential investor will begin conversations around the investment terms. A thorough diligence on you and your company will also be done.
A few things that will reduce your investment chances include:
- A bad credit record/credit score.
- Inconsistency in the information you provide on you or your business.
- Inaccurate or outdated financial statements and management accounts.
- If you are unable to provide information to the potential investor.
- A lack of technical skills and/or business insight from you or your business partners.
- An unreasonable or unsubstantiated financial projection or budget.
If you meet all requirements and the investor approves the pitch, you will receive your funds in the bank. You will also need to share information about your business with the investor and delegate some decision-making.
The best thing about VC funding is that the investors bring more than just money to your business. Venture capitalists have experience in starting and running successful businesses. They bring valuable knowledge and expertise to the table.
You will need to draft a shareholders’ agreement which covers the rights and duties of your investment fund managers. This includes:
- Receiving regular company performance reports.
- Consulting on important decisions e.g. business acquisitions and disposals.
- Control of the shareholders’ exit process.Stages of VC Funding
There are five stages to VC funding. These include:
Stage 1: Seed Stage – Funding in the seed stage is used for research and development. This helps you develop a prototype or production. You can also use seed money for market research and to grow your team.
Stage 2: Start-up – This stage comes after the initial product is finalised. Stage two focuses on advertising and marketing the products to potential customers.
Stage 3: First Stage – By this stage, you will have developed a commercially viable product. Funding will now go towards manufacturing and production facilities. The funds can also go towards sales and marketing.
Stage 4: Expansion Stage – This is when you will use funds to push the growth of the start-up, which should be generating some revenue. You can also use funds to expand into other markets or on further product developments.
Stage 5: Bridge Stage – By this time your company should be mature and can now go public. Financing is used to support acquisitions, mergers, and IPOs.
Secure Business Funding
VC Funding Platforms
VC funding might sound like something you can only get overseas but that is not true. Many VC funding platforms exist here in South Africa.
The Angel Investment Network
The Angel Investment Network also known as The Investment Network was founded in 2004. The firm has a focus on helping entrepreneurs, start-ups and SMEs get funding. The organisation has a network of investors across 90 different countries.
According to its website, the Angel Investment Network has over 1,9 million members. This includes more than 300 investors and over 1,5 million entrepreneurs. The platform has raised over R 4 billion for start-ups.
Spear Capital
Spear Capital helps high-growth SMEs in select SADC countries with business capital. The company uses its business experience to get the best returns for investors in financial, economic, social and environmental aspects. It also has a great focus on long-term growth for start-ups. It focuses mostly on start-ups in the manufacturing and retail sectors.
WZ Capital
This VC firm was established by the Ntsabula family. The organisation offers help with planning, connections and up to R 1 million in funding capital. WZ Capital focuses on businesses in the start-up stage, that have a technology-first approach. It also assists new business owners with business development.
These are just a few examples of VC firms actively operating in South Africa. Others include Kalon Venture Partners and Savant. You need to find the one that’s right for you and start applying to get funding for your start-up.
For more information on funding for your business, visit the SME South Africa website.
