Efraim Landa is the founder of Effi Enterprises, a VC firm that funds medical start ups all over the world.
You have to have money to make money, right? Not exactly. In fact, millions of people who’ve started their own businesses, many of them extremely successful have started their own businesses without a penny to their names. In some cases, all it takes is a good idea that an investor believes in to get a startup off the ground. In other cases, having a product or even just a prototype will get an investor interested enough to put their capital on the line. And when that VC funding comes in, it’s the start of a whole new business and a whole new life for many involved. If you’re lucky enough to be born into money, well, you’re already more than halfway to success. But if you’re like many others, you don’t have the cash for that startup, let alone the ability to risk it. After all, you can’t risk what you don’t have. And that’s where VC funding comes in. Venture capital is a means of obtaining substantial amounts of cash that you can use for that startup. After a solid business idea and/or product and the know-how and courage, venture capital is an important and viable means of funding your dreams.
Venture capital is a pool of money. A VC firm will invest in businesses or business ideas that interest them. Oftentimes, VC firms seek out startups whose business ideas fit into the category or categories they’re interested in funding. These funds may contain as little as a million dollars (or, rarely, even less), or as much as hundreds of millions of dollars. Many of today’s most sought-after startups involve high-tech businesses or ideas that are cutting edge in their fields, such as pharmaceuticals or clean energy. When a VC firm finds a number of startups that interest them, they raise a fixed amount of capital that they then invest in, and that means they now have a stake in them. Risks involved in VC funding can be high, but that means that the rewards, too, are high. Venture capital firms typically expect that liquidation of their investments will occur within 7 years. This means that the startup is expected to go public, meaning they will now sell their shares on a stock exchange. The big question, of course, when it comes to VC funding is… how do I get it?
When it comes to VC funding, the biggest attraction in today’s market is big… big, revolutionary ideas that are on the cutting edge of culture. They’re ideas that are considered to have the capacity to change the world as we know it. The reason VC firms look for such revolutionary concepts and products is that they’re looking for big returns on their investments. Companies, products, and ideas that are at the forefront of their industries… these are what VC firms put most of their funding when it comes to startups in today’s market. For many startups, innovation is key.
Another attraction for VC funding is a team of individuals who are experienced and knowledgeable in their industry. Can young kids with big, revolutionary ideas still get VC funding? Of course, but it’s just a little harder now than it was a decade or so ago. Today, VC firms are looking for a team of individuals who are all qualified, competent, and in many cases, accomplished in their fields. VC funding can be very risky. Today’s venture capitalists, for the most part, are every bit as interested in what you know and what you’ve done as they are in what your product is and what it can do.
Finally, if you’re looking for VC funding, you may want to consider getting together a good business plan first. You don’t have to have an MBA, but you need to know your stuff. How much does it cost you to get a customer? How much does it cost you to keep a customer? What is your competition? Is there any other product out there that does what yours does? If so, can it do it for less than customers will pay for yours? If so, why? What kind of margins do you have? If I invest in your business, where’s my money going to go? These are just some of the basic questions you need answers to before you go after VC funding. Top venture capitalists aren’t going to give you a penny if you don’t know where their money is going and how you’re going to not only get their investment back to them and when, but also what their reward will be.