Venture Capitalists

Government agencies, particularly the Small Business Administration (SBA), will not lend you money directly.  However, they will work with local financial institutions to guarantee that your business will be capable of repaying loans made to it.  In the event that your business will not, the government will provide the lender with a percentage of funds needed to repay your loans. 

A venture capital firm provides significant funds to starting businesses as an investment opportunity.  As such, they will request on average 30 to 50 percent of the equity in your company (United States Chamber of Commerce) and expect a high rate of return.  Typically venture capitalists look for start-ups in the high-technology industries, like biotechnology or electronics and software.  In addition, they want to invest in companies that have proprietary technology, read patents, and have a target market that is greater than $1 billion.  You will need to prove that you can obtain roughly 60% of that target market.  For these reasons as a small business owner, you will probably want to seek other ulterior methods of funding.  If you should decide to approach a venture capital firm, you will need to have a business plan and present your idea to them. 

pair of dice laying on a newspaper page

Consider finding a firm that:

  • Will allow you to manage the daily operations of the company and retain control.
  • Has experience in your industry.
  • Has confidence in you.

Before presenting your business plan or information about an invention to a venture capital firm, you will want them to sign a confidentiality agreement.  You will never want to sign anything they give to you before having your lawyer review it.

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