A Venture Capital (VC) fund invests money and expertise in a business to help it grow.
“VC is not a transaction – it’s a partnership. We want to find someone we can work with, through the ups and downs of business, and build a relationship based on common trust and values.”
David Mott Founder Partner at Oxford Capital and Chair Of The Venture Capital Committee at BVCA
Killer Stat
Deliveroo, JustEat and iZettle all received Venture Capital backing in their early stages.Key requirement
You must have a strong management team, who want to rapidly grow the business
Key benefit
Key consideration
What is Venture Capital?
Venture Capitalists put money into early-stage businesses to help them grow. As well as money, businesses can expect strategic advice from an experienced new board member.
VC funds often invest in cycles of between five and seven years. They expect businesses to grow significantly during this time – and make a return for the fund. Sometimes, funds will hold on to an investment to help the business grow even further.
Businesses can often expect further investment ‘rounds’. Seed round investment is typically offered for proof of concept and can be several hundred thousand pounds. Series A investment onwards can be many millions.
What are the main Venture Capital schemes?
EIS (Enterprise Investment Scheme), SEIS (Seed Enterprise Investment Scheme) and VCT (Venture Capital Trust) encourage investment into UK businesses. EIS and SEIS give tax breaks to investors, so they are incentivised to invest.
Meanwhile, VCT helps de-risk investing by pooling investor money and spreading it across a range of businesses. The result is more investment in UK businesses.
What are the benefits of Venture Capital?
Relevance
VC is an option for a wide-range of companies. Profit, and in some cases revenue, are often not a requirement in the VC world.
Strategic guidance
Get support from experts and entrepreneurs.
Large injection of cash
You can get millions of pounds to expand your business, without giving away a controlling stake.
Regional opportunities
VCs regularly travel to regions across the UK.
What are the risks of Venture Capital?
Equity and growth
There is no guarantee that your business will achieve growth as a result of the investment.
Competition
Venture Capital investment is in high demand. VC funds may not be investing when you are looking.
“VC is an incredible partnership between financial professionals and founders. Many VCs are often ex-entrepreneurs, so their advice can be invaluable.”
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David Mott Chair of the Venture Capital Committee @ BVCA |
Is Venture Capital right for you?
About your business
| Business Stage | Early stage; no revenue or profit needed | |
| Annual turnover | Depends on the business, but is often below £3m | |
| Sectors | All | |
| Regions | All |
About Venture Capital
| Purpose of finance | Acquisition; research and development | |
| Amount of finance | £1m+, depending on funding round | |
| Duration of finance | 5 - 10 years | |
| Cost of finance | None | |
| Time to finance | 6-12 months |
Ask an expert - what do investors look for in a business?
“There is a split between the investors whose first instincts are to identify a sector and those who look first and foremost at management teams.
“Sector-led investors look for revolutionary technological change or demographic positioning. Other VCs consider whether the founders have the vision and expertise to grow a business.
“A useful tip for entrepreneurs is to think about what sector they’re in and then work out if the product within the sector is the USP or if they are the USP.”
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Tim Hames Director General @ BVCA |
Venture Capital considerations
- Board Seats VCs often expect representation on your board in exchange for funding and support.
- Management Team The VC fund needs confidence in your leadership team, as there is very little else to go on for early-stage businesses.
- Understand your VC VCs look for different things, so increase your chance of success by doing your research on the fund.
- VC Mentality VCs expect some businesses to fail. Understand early that it's about relationships, as much as making money.
- Economic Cycle Competition on funds depends on the economic climate. Sometimes funds are not investing much at all, and other times a business may have lots of offers on the table.
How do you get Venture Capital funding?
- Both VCs and entrepreneurs can make the first approach
- It often takes up to a year to do the deal, but this can vary
“The earlier VCs can start the journey, the better. Sometimes they’ll talk to entrepreneurs for months or years before they actually invest.”
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David Mott Chair of the Venture Capital Committee @ BVCA |
What's your next step?
What sub-sets of Venture Capital are there?
Accelerator and Seed-Focused VC
- Firms will invest early in companies, when the price is lower. It’s a risky investment, but the pay-offs can be bigger.
Corporate VC
- Firms invest in an area close to the immediate interests of the fund. For example, the Venture arm of a large oil corporation might invest in new energy technologies.
