Few Startup Companies Attract Venture Capital Firms

Article excerpt

Q. I plan to quit my job and start my own business. How can I attract venture capital to support my new firm?

A. Many aspiring entrepreneurs mistakenly try to find venture capital when very few start-ups qualify for venture capital funds. Traditionally, fewer than 1 percent of applications for traditional venture capital are funded.

First, only a small number of venture capital firms are interested in raw start-ups. The majority prefer to see several years of track record before considering investing in a venture. Statistics show that fewer than 15 percent of venture capital investments are with start-up ventures. Second, venture capital is probably one of the least understood areas of financing by entrepreneurs. Most venture capital groups look for ventures with high growth potential where they can quintuple their investment in five years. Some of the smaller funds prefer to invest upwards of $250,000. Some of the mega funds do not invest less than $1 million to 5 million. Venture capital firms want to see a management team that has the ability to take the business concept and grow it rapidly. …