By James Chittenden
All startup owners consider venture capital funding, including you. Before you look to get venture capital funding for your startup, make sure that it is appropriate for you. It may or may not be. Why?
The process can be time-consuming, competitive, and for most startups it will be futile. However, the right business and the necessary capital will eventually find each other.
There are countless ways to fund your business and VC is just one of them.
It is common for VCs to lose money on 90 percent of the businesses that they invest in. Therefore, they are always looking for the 10 percent that they not only profit from but make up for losses in the rest of their portfolio.
The high probability of failure is why VCs are known for driving hard bargains in exchange for capital investment.
Scott Kelly is the CEO of Black Dog Venture Partners . Kelly has nearly four decades of experience in venture capital and investment banking. Like other VC firms, Black Dog Venture Partners is a niche firm.
What businesses are ideal candidates for VC funding?
SK: It really depends on the VC Firm. They invest at various stages and in various industries, so it is important for founders to research the VCs they want to pitch first. It is important to understand that VC firms are looking for businesses that have traction and revenue, so pre-revenue founders should consider angel investors as an alternative.
What industries does Black Dog Venture Partners specialize in?
SK: We like businesses with recurring income such as SaaS (Software as a Service) or a subscription model but will look at most companies with a great idea and great founders. We look at the team and whether they have a really good idea that solves a problem for a lot of people. Really, it is more “art” than “science’ for early stage companies.
We are impressed by the best answers to these questions.
- What is the problem you are solving? Why is it a problem worth solving for a lot of people?
- What is your solution to that problem and why is it better? Is it faster, cheaper, or easier?
- Who is your ideal customer and how will you reach them?
- How are you going to make money? What is the product or service, and does it produce monthly revenue?
- Who is on your team and why are they best to execute on your plan?
- How much money do you need? What will you use the money for? What milestones can you accomplish and when if you raise this money?
- Can you get to profitability in a year? How many people do you need to hire?
TELL THE STORY of how you will earn a return and WHY is this so important.
What businesses should avoid VC?
SK: Most of them. That is the short answer. The best, non-dilutive capital you can raise is hitting the street and selling your own product. Do it only if you need scale such as a factory or a technical team. If you have a well-defined exit plan, so much the better.
Remember, “Putting money into the company is the easy part. Getting money out of the company is the harder part”.
What terms should founders expect from VCs?
SK: The terms depend on many factors. The company, the idea, the competence of the founders. It also depends on the criteria, specialty, and leadership of the VC.
Where can a startup get access to VCs?
SK: Incubators and accelerators. Other successful founders have raised money online via AngelList, Crunchbase, and LinkedIn.
What are typical minimum and maximum VC funding commitments?
SK: Remember that there are many rounds of capital raise. Seed capital, maybe angel investor funding, then VC may be an option. Other rounds of capital often come first. The range of funding commitments generally range from $50,000 to tens of millions of dollars.
What are minimum revenue, time in business, and other requirements to apply for VC funding from Black Dog?
SK: We are more early stage. Our check size starts at $25k. We can be part of a syndicate. We prefer industries that my team and I have experience with.
Kelly adds that Black Dog Venture Partners participates in pitch competitions. VC Fast Pitch will take place in St. Petersburg, FL. on Feb. 2, 2023. Details and registration are available here.
It may take several rounds of pitching and negotiations before you are able to secure an investment. Game it out with high-quality business planning software and other software such as the One Click Advisor Business Builder.
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