Ahhh, Venture Capital, the quaint and entirely American notion that if you send some stranger a business plan, they will send you a million dollars. We wouldn't bet on it if you are a minority-owned company.
And don't laugh too hard, sisters. According to one source, "women-owned businesses receive less than 4% of venture capital money."
To help you along, we've included some data on the best venture capital sites for women and minority investors. We're gonna be frank here. We hope you don't mind. We must warn you at the outset: Most, but not all, venture capital firms targeted to minorities and, to a lesser extent, women, are ineffective. This includes most of the incorrectly named MESBIC's (Minority Enterprise Small Business Investment Companies) and the SBA.
Basics - Venture Capital (VC) firms invest in start up and early stage firms. Venture capital investments usually start at $250,000 and are mainly in "businesses that exhibit extremely high growth potential." If they invest, these firms expect to earn a significant return on their investment. For example, one venture capital firm, in 1996, invested $2 million dollars in Lycos, an internet search engine. That investment was worth $427 million at the start of 1999.
Another VC firm told a small minority company we know that "Unless you foresee revenues in the ballpark of $20 million in year 3 for the product this would not be a venture target. Thank you so much for considering BLANK Venture Partners." If your venture does not have a chance of meeting these investment return and revenue targets, reconsider seeking venture capital.
Other considerations: Most venture capital firms cannot correctly evaluate investment opportunities in minority markets. They don't have the personnel to do so, (even with their recent women of color hiring spree.) Still, if you feel your business will, in fact, generate "revenues in the ballpark of $20 million in year 3 for the product," give them a shot.
But, be careful. Before you send them anything to any venture capital firm, get a signed confidentiality agreement. Or, send a stripped down version of your business plan, without all of the secrets. Many VC firms simply collect good business plans and ideas, which they then develop. We feel this will be especially problematic for minority firms.
Venture capital is hard money to get, especially for women and minority firms. The perceived benefits may not be as large or impactful, either. In addition, the social and moral stance of most venture capital firm is suspect. And, they are greedy. The added pressure to meet return targets may drive certain mangers to cut corners (see: Enron). Still, for certain firms, venture capital funding represents the ultimate solution to the fundraising dilemma.
Request a Call!As one website noted, for startups and new businesses with a lot of growth potential, venture capital can provide the resources you need to grow quickly. If you have "a new business idea with a ready-made and eager market to buy it, but don’t have is the money necessary to develop that idea into a product you can sell to that market, at least not before competitors can, venture capital might allow you to quickly create and expand the business, gaining market share and brand recognition before competitors can beat you to the sale."
They key is understanding that venture capitalists are looking for high growth, high return prospects in well prepared markets. They are very very greedy.
Most venture capital investments start with the submission of some form of business plan or deck. This document outlines the opportunity and the market. It may contain a review of the existing and expected competition and provide detailed financial projections. You will certainly need to provide details on the management of the company.
To make the best use of this resource, we suggest you research specific venture capital firms to find out exactly what they look for when it comes to eligibility.
Venture capital firms look for potential investment that will generate MILLIONS in annual revenue.
Many say that "the most important condition is that you develop a winning business plan" to get venture capital funding. We disagree. Based on statistics, the most important characteristic is that you be young, male and white. Period.
As one website noted, "most venture capital firms want to see proprietary intellectual property, a large market size, management team members with expertise and experience, and a current valuation that allows for a good return on investment" and that you be young, male and white.
The following documents may be required:
Many venture capital firms have no fees.
Other Fees include Late Payment Fees, Closing Fees, taxes.
Apply For LoanMinority Small Business Venture Capital Options.
Larger venture capital online lenders have not shown any particular skill in serving women or minority firms. On our blog, we list some of the Black women working for VC firms. While we think this is a good sign, remember - the problem is with the VC model itself, not with the color or gender of the people who populate the firms. You're still not going to be able to get money from these firms unless you fit the demographic they prefer.
Venture capital firms targeting women and minority firms tend to be geographically focused, like most online lenders. You must conduct a comprehensive review of venture capital firms to determine if any work with women and minority businesses. If you need help, contact us.
Venture capital represents an option for women and minority firms, but a bad one: "black employees made up just 3% of the venture workforce, while Hispanic or Latino employees accounted for 4%, a recent survey by the National Venture Capital Association and Deloitte.." The number of VC firms targeting women and minority firms has grown, sure, but... part of the reason for the current focus on black firms is the relative “overabundance of good ideas in the black community.” Since black startups have not been able to get capital, and since white startups have been flooded with capital, good startup business ideas reside in the black community more so than the white community. Black companies have simply been unable to implement and execute their ideas. As the VC community looks for good ideas, they will find a lot of them in the community they overlooked. And higher demand for capital could be prompting venture capitalists to now look more at black firms. As black women start more businesses, the demand for business capital grows. Even with the recent marked increase in VC funding for black firms, the acid test going forward will be if that level of funding will continue. More importantly, a key metric will be if black firms can secure a larger percentage of the total amount of venture capital funding in a given year. That would show whether or not this increase in funding is authentic and sustainable over the long term.
Venture capitalists and their private equity firms are regulated by the U.S. Securities and Exchange Commission (SEC). Venture capital is subject to the same basic regulations as other forms of private securities investments.
We have included some forms and templates you might find helpful in your search for venture capital.
These sample funding documents are educational in nature. You will still need to review all documents with your team and with a lawyer.
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