Starting a business can be a tricky endeavor, especially if there is no external funding behind it. Many business ideas fall through because there is not enough capital to get the potential company off the ground. This is where venture capital comes in.
Venture capital is a type of financing that provides startup funding for small businesses that appear to have great potential for growth. Venture capitalists are the people or firms that provide this funding – often in the form of individual investors, venture capital groups, or even banks.
Venture funding can be a risky decision, but the payoff can be very lucrative. This is especially true for investors who get involved in Series A Funding – the first round of major funding for any given company. If the company succeeds, these groups will see the highest return on their investment. They will also usually have a larger influence on company decisions and policies.
Venture Capital Stages
Startup funding usually happens in stages. As a company grows and proves its profitability, more investors will be willing to take risks with it. Usually, those who get in earlier will see a higher return and will be able to retain more ownership of the company. However, they are also more likely to have to take on liabilities if the company doesn’t perform as expected.
The stages of venture capital funding are as follows:
Pre-Seed Funding
Pre-seed funding happens in the very early developmental stages of a business. Usually, the funders are the actual founders, as well as close friends and family that have interest in helping the company get off the ground. There are not usually external investors during this unofficial stage.
Seed Funding
This is the first real stage of funding that utilizes venture capital. The seed funding round is designed to help a company raise capital to finance its first official steps as a business. This money could be put towards research and development, building leases, and hiring. Angel investors will often take a big risk in providing seed funding, but they expect to receive a certain amount of equity in return.
Series A Funding
This round happens after a company has proven that its idea has appeal and that it has a strong strategy to expand. Investors here will perform a more in-depth analysis to ensure that the future looks bright, and that expansion will be profitable. This is when more traditional venture capital firms start to show up as investors. While the seed round exists mostly to get an idea off the ground, Series A Funding is designed to make a company more profitable in the long run.
Series B Funding
The Series B round takes place after a company has already been established as a legitimate player in their industry. It may still have a long way to go to be one of the top performers, but investors have plenty of confidence that it can expand even further. Series B capital is often used to boost sales, marketing, and tech teams by hiring employees and investing in technological resources.
Series C Funding
Series C rounds are for companies that have already reached a certain level of success. The funding is used to help them develop new products, break into new markets, or even acquire or merge with other companies. There is less risk involved for investors here, but the cost to get in is often higher. This round is when investment banks, hedge funds, and private equity firms often start to get involved.
How to Obtain Venture Capital
There are millions of great ideas out there, but not all of them can become successful businesses. There are several steps that can help an aspiring company obtain the venture capital needed to get off the ground.
Set Tangible Goals
It is important that business owners have realistic, attainable goals that they can speak about with potential investors. Without both quantifiable and qualifiable goals, the business won’t appear to have a direction.
Make Sure the Company is Ready
Investors aren’t going to simply hand money over to a company with a good idea. There needs to be some evidence that there is interest in the product and that it could be a disruptive presence in the industry. Once a business has an idea, a team behind the idea, a product, and a customer base, it can begin to pursue venture capital funding.
Create a Presentation
Founders need to put together a solid presentation that not only shows the strength of the idea, but also outlines a business plan. This should include information about the founders, current financials, and management teams. It should also emphasize why the new product or service is worthy of investment. Venture capitalists need to believe in something before they invest in it.
Research Venture Capitalists and Firms
It is important to find investors who are a fit for the business. Most firms and individual investors specialize in certain industries, as well as specific stages of funding. When a company is first starting, it should focus on securing capital from seed-round funders who have experience in the industry.
Perform Due Diligence
Due diligence is a process that confirms both the company’s finances, structures, and employees as well as the ability of the venture capitalist to fund the endeavor. It is important for both sides to perform due diligence to ensure that the deal can go through without a hitch.
Venture Capital and Payment Processing Firms
Venture capitalists are always investing in a wide range of industries, but some sectors are more popular than others. The technology sector has seen a lot of VC funding in recent years, and it doesn’t look like that is going to slow down any time soon. Young startups continue to disrupt a variety of industries, and venture capitalists are eager to invest in these great ideas that always have potential to become the next big thing.
The payment processing industry, in particular, has caught the attention of many venture capitalists. As the concept of using cash or check to pay for products has fallen to the wayside, digital payments have become the preferred method of completing transactions.
Almost every business needs a way to accommodate online payments, so it makes sense that the industry is seeing many new players enter the game. There are many complexities involving ease-of-use, security, and user interfaces that can give one payment processing firm the edge over another one. Those who stay on the cutting edge of technology and who market themselves well are more likely to succeed in an industry that has a virtually unlimited customer base.
It’s easy to see why venture capitalists are excited about this sector. In addition to some revolutionary ideas about payment processing, there are also firms that simply put together a solid product that works well for their customers. It doesn’t have to be a flashy product in order to receive funding. If it is marketable and gets the job done, investors can expect a decent return on their funding, no matter what stage they get in at.
Companies like National Processing are continuing to push the limits of payment processing technology, helping their customers not only facilitate online sales, but also boosting their overall profitability. It isn’t just about accepting credit card payments online. Merchants can also take ACH checks and invoice electronically, eliminating many costs associated with back-office work.
National Processing provides access to point of sale payment processing systems, such as standalone touchscreen stations or mobile credit card terminals. But it isn’t just about the physical devices that allow for payment processing – the online features and advanced software help make accounting easier and more efficient. Anything that helps a company save time will inevitably help them save money, and National Processing is helping their customers do just that.
Consider the times before online payments, or even before credit cards. Pretty much every merchant needed a cash register to help speed up their transactions. They also needed plenty of paper for bookkeeping, as well as time to balance their ledger and ensure that every transaction was accounted for.
These days, payment processing firms have replaced the old-school method of pen-and-paper transactions, as well as the need for bulky registers filled with cash. That means that almost any company who wants to sell something needs to utilize one of these services.
Venture capitalists are realizing the widespread need for these services, and they are investing billions in an industry that isn’t likely to go away in the future. When investors can find a sector that is only likely to grow, they are going to put a lot of confidence in many of the companies that are making major changes. These firms are seeing their valuations skyrocket, and they are receiving funds at every level of their growth, because the industry is stable and ubiquitous.
It will be interesting to see how many more companies enter the payment processing fray, and how long venture capitalists remain bullish on the market.
