PUBLISHED: 10:32 26 September 2012 | UPDATED: 21:57 20 February 2013
Research by Coutts bank shows that entrepreneurs are wary of Venture Capital as a source of investment – but is that because most of them haven't experienced it first hand? Christine Wadley explains
Research by Coutts bank shows that entrepreneurs are wary of Venture Capital as a source of investment but is that because most of them havent experienced it first hand? Christine Wadley explains how to make venture capital investment work for Cotswold business.
Gloucestershires Local Economic Partnerships (LEP) Banking Forum recently launched a guide to raising finance for local businesses, including routes to finance, business plan tips, local grant making organisations, cash flows, business planning and mentoring.
At Coutts in Cheltenham, we often hear from local clients, particularly those who are successful entrepreneurs, looking for local businesses in which to invest.
Whether this is investing in one of the many technology or innovation companies across the Cotswolds, or a new start up, we so often witness first hand the critical role that venture capital investment plays in building businesses across the region.
Venture Capital is a critical role for entrepreneurs in the UK, and there is an argument that of all sources of capital available to smaller businesses, venture capital investors are the ones most attuned to the entrepreneurial mindset of a business with great potential.
Coutts recent report, The Price for Growth, which looks at entrepreneurs views of venture capital and private equity, showed some surprising findings. Although these routes to investment may have firmly established themselves as drivers of business growth, many entrepreneurs are wary of the venture capital experience and are sceptical about the outcomes. It is notable that of these entrepreneurs, the majority are those who have not experienced venture capital investment first-hand.
It is hard to build knowledge without first-hand experience and our research outlines ways in which entrepreneurs can understand the Venture Capitalist Mindset and maximise their chances of working successfully with this type of investment.
Firstly, you need to understand how investors think. In a landscape where investor priorities change, entrepreneurs should do their own due diligence on potential venture capital investors as part of planning their funding needs, and strive to create relationships with them.
Secondly, it is important to get the right deal. Once you have made an informed decision that venture capital investment is the right route for your business, your second area of focus is to get the right mindset to deliver what the business needs. You may need to raise money to grow but that doesnt mean that you have to accept money at any price from a venture capital investor. Taking control of the deal and being clear about what you really want from the investors can pave the way for success.
This means preparing yourself and your team for your dealings with investors and being clear in your mind about what is important you and what is not, in a venture capital deal. Areas of preparation include being honest and confident about what you want, not compromising on quality, making sure the cultural fit is right and not being too controlling, but think about the opportunity being offered. These are critical to getting the deal which fits with you and your business.
Finally, there is the last stage of delivering success from the deal. The mechanics of the venture capital investor-entrepreneur relationship is the key area that, once in a deal, you simply cant afford to get it wrong. The relationship with a venture capital investor is one that requires proactive and skilled management from an entrepreneur. Being clear about the boundaries, targets and control upfront is what frees you to concentrate on growth and success.
There is no doubt that entrepreneurs see venture capital as an important source of finance and associate it with increased growth in their businesses. What our research shows however, is that when it comes to considering this source of finance, negative perceptions around the nature of venture capital and how to work effectively with these investors dont reflect the true experience of those who have done this - are likely to cloud the judgment of entrepreneurs and get in the way of approaching venture capital with a mindset which will deliver a successful deal. There is clearly an opportunity for more entrepreneurs to look again at this source of finance which could unlock future growth in their business.
A full copy of the report can be obtained by emailing firstname.lastname@example.org