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How to access venture capital

  • Describe how to get hold of VC funding
  • Identify what makes a good VC investor
  • Explain the most important aspects of getting a business off the ground

Private equity is about optimizing established business by means of financial engineering, in many cases by putting additional debt (or “leverage”) onto the company. 

 So one way to think about this is that VCs are focused on “value creation” whereas PEs are focused on “value optimisation”. 

VCs tend to value a business based on its future potential for strong growth, while PE firms typically anlayse historical growth patterns and project them forward. Hence PEs depend on a discounted cash flow (DCF)  analysis to value an existing investment, or company, and that put that into the context of an expected exit value that would ensure their typical return. PEs typical take less risk (the business is more proven) and expect to make a lower return (typically 2x - 5x their investment) whereas VCs take a bigger risk on an unproven business and expect to make a much larger return (5x - 10x).

How do I attract attention to my idea?

Traditionally, VCs have favoured so-called fintech innovation hubs. These centres of ‘excellence’, in which founders coalesce, present their ideas and network, can range from accelerators, incubators, and even sometimes serviced offices in certain geographical areas. Some examples of this includes Level 39 in Canary Wharf and Silicon Roundabout in the City, High end business schools, such as Imperial and LBS, have MBAs that are often interlinked with investors as well, and many top businesses have started in such schools such as QED’s investment Braintree which was incubated in the University of Chicago and later sold to PayPal. 

This geographical concentration made it easy for VCs to spot fintech founders, but it often meant that equally good if not better opportunities went unseen, because they were generated by those working at the coalface within business sectors.

This is particularly true of the financial services sector where deep expertise in a specific sector often innovates customer driven tech solutions whose innovators want to go develop them for themselves. 

Covid has disrupted the VC founder proximity, while widening opportunity for all; those in need of funding need to become more visible while working from home, but at the same time they no longer need a physical imprint in a tech hot spot to be noticed.

Further inclusivity in the future will likely be driven from the government’s acting on the Kalifa Review into Fintech, investing in regional hubs and connectivity away from London. 

The importance of Visibility

 In every case, networking, PRing, and widening a social circle is key. VCs are increasingly keen to initiate discussions early on, regardless of whether the ‘founder’ - or professional, is looking for advice, immediate or long term financing.