Venture Capital Financing: A Guide for Startups

In Asia alone, startups are blossoming in every corner. In fact, Southeast Asian startups raised $25.7 billion in 2021. This should not come as a surprise as companies like Lazada, Grab, and Gojek were founded here!

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What is Venture Capital?

So, what exactly is venture capital? Venture capital is a form of private equity financing that is provided by venture capital firms to startups, early-stage, or emerging companies that have been deemed to have high growth potential or have already demonstrated high growth.

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Benefits of Venture Capitalist Financing

Taking a venture capitalist financing approach in investing can greatly benefit startups in multiple ways! Let’s take a look at three examples in detail:

1. Startups may not be eligible for bank loans

The primary issue with the financial security of startups is that they may not have a substantial financial history or valuable assets to qualify them to take out a bank loan. This makes companies like these ideal candidates for venture capitalist firms that are searching for promising businesses.

2. Guidance from venture capitalists

Often times venture capitalists can take on technical or managerial roles, in some cases they can also become board members. In doing so, this can offer growing companies their expertise and guidance, ultimately leading to profitability.

3. Good networking possibilities

It offers startups a great networking opportunity as venture capitalists have a broader network of connections across different industries. This can prove to be beneficial for startups since they want to grow and expand quickly.

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What’s the Difference Between Venture Capitalists & Angel Investors?

There is a common misconception that the term venture capitalist and angel investor can be used interchangeably. However, it is important to note that venture capitalists are actually employees of venture risk capital companies that invest other people’s money into companies, whereas, angel investors are independent people that invest their own money into companies they see fit.  

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How Do Venture Capitalists Select Startups to Invest In?

Venture capitalists are very careful with the companies they choose to invest their money into. That is why crafting a proper business plan and pitch is vital. Emphasize the uniqueness or differentiation that your business has to offer and how that can challenge traditional business models, as well as what the expected returns are going to be. Venture capitalists want to invest in companies that can redefine or dominate an industry, generating outsized returns for their investors.

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When in Doubt, Reach Out!

Sprout Asia is here to allow you to focus on what you do best, while we take care of the rest! That’s why we offer a range of budget-friendly services to companies just like yours, such as incorporation services, accounting services, corporate secretarial services and much more! Feel free to book a complimentary consultation with our experts to discuss your business needs, we’ll respond within 24 hours.