Remember, you need both. Don't try to replace one with the other. Use each component for its intended purpose:
1. Venture capital should be used in early rounds to fund R&D and development to create a product. In subsequent rounds - for the purchase of securities, marketing and accelerating growth.
2. The loan must be used to create working capital and build infrastructure.
Credit usually follows venture capital. Credit is cheaper than venture capital.
Keep in mind that venture investors put their money at greater risk and therefore can expect a higher return on investment.
Know that the sooner you establish connections with banks, the better. This will increase the confidence of potential investors in you and help create favorable conditions for obtaining loans in the future.
You need both. Don't try to replace one with the other.
Which banking services to use at various stages of your business development
Seed stage: deposit accounts.
Series A Financing: Equipment Leasing Financing / Cash Management / Investments.
Further financing: provision of working capital, financing of the purchase of equipment, cash management, investments, letters of credit. (Source: Silicon Valley Bank).
Calculation of funding over time
Keep in mind - the most popular strategy is phased funding. It is the process of setting a time frame for each round of funding that aligns with the completion of a milestone in the overall plan to build your business.
Characteristic features of venture capital:
Funding is provided to new or existing firms with potential.
It is provided to venture enterprises and enterprises that create new niches in the market. they don't have the collateral, history, or income to get a loan.
The experience of managers is the main criterion in assessing the prospects for the likelihood of obtaining funding.
The entrepreneur transfers some of the ownership and control of the business to the investor.
Investments requiring high returns are structured so that the return on them is made within 3-7 years.
Having become liquid - through an IPO, sale of a business, etc. - the company switches to other sources of financing.
Venture capitalists expect to earn a 20–50% annual return on their investment by the time the firm is liquid.
A typical investment is between $500,000 and $5 million.
2.2 Fundamentals of venture capital
Venture capital is capital invested by investors in a risky venture in the early stages of its development.
Choose the best of the best
The most important thing you should do is to find a real professional in the field of raising funds and establishing useful contacts. Your management team needs to interview at least five candidates, choose the best one, and then carefully check their business qualities and reliability. You need someone with good connections in your industry and experience in raising investments in companies like yours. When investors want to get to know you and your team in person, the involvement of a well-chosen intermediary will help to make a successful representation of your company and achieve your goal.
Time frame
Remember that it is vital to success in your business that you realize that you are constantly seeking and raising capital as your company grows and develops. The end of one funding round is the beginning of the next. It will take at least six months to find funds for the first round of funding. For the next - from three months to six months.