Investment to help young businesses grow. Alongside funding comes strategic advice from an experienced professional.
Venture capitalists (VCs) 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)Link opens in a new window, SEIS (Seed Enterprise Investment Scheme)Link opens in a new window and VCT (Venture Capital Trusts)Link opens in a new window encourage investment into UK businesses. EIS and SEIS give tax breaks to investors, as an incentive to invest.
Meanwhile, VCTs help take away some of the risk of investing by pooling investors' money and spreading it across a range of businesses. The result is more investment in UK businesses.
Venture capital is an option for a wide-range of companies. Profit, and in some cases revenue, are often not a requirement in the VC world.
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.
VCs regularly travel to regions across the UK.
Equity and growth
There is no guarantee that your business will achieve growth as a result of the investment.
Venture capital investment is in high demand. VC funds may not be investing when you are looking.
About your business
- Business stage: Generally early stage, pre-revenue or pre-profit
- Annual turnover: Less than £5m
- Sectors: All sectors, but especially suitable for companies with a scalable business proposition
- Regions: All
About the finance
- Purpose of finance: Acquisition; research and development
- Amount of finance: £1m or more, depending on the funding round
- Duration of finance: 5–10 years
- Cost of finance: None
- Time to finance: 6–12 months
Ask an expert: Tim Hames, director general at the British Private Equity and Venture Capital Association (BVCA)
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 unique selling proposition (USP) or if they are the USP.
VCs often expect representation on your board in exchange for funding and support.
Strong management team
The VC fund needs confidence in your leadership team, as with early-stage businesses there's very little else for the investors to go on.
Understand your investor
VCs look for different things, so increase your chances of success by doing your research on the fund.
VCs expect some businesses to fail. Understand early that it's about relationships as much as it is about making money.
Competition on funds depends on the economic climate. Sometimes funds are not investing much at all, while at other times your business may have lots of offers on the table.
Either you or the VC 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 an investor will talk to entrepreneurs for months or years before they actually invest.
To learn what steps you need to take to ready your business for venture capital, use this checklist.
After a momentous 2020, 2021 will see businesses still needing funds and VCs still seeking opportunities to invest. Learn five things VCs are looking for in 2021
“Venture capital is an incredible partnership between financial professionals and founders. Many VCs are often ex-entrepreneurs, so their advice can be invaluable.”
Other finance options
|Purpose of financessss||Create new products, enter new markets, acquire other businesses or invest in new systems and equipment to drive growth|
|Amount of finance||£2m-£20m (depending on % shareholding acquired and value of company)|
|Duration of finance||3-5 years|
|Cost of finance||Due diligence and legal fees will apply. If you appoint an advisor, they will expect a retainer fee|
|Time of finance||Minimum of 3 months but can be up to a year|
|Business stage||Post-revenue, profitable and growing|
|Purpose of financessss||Working capital, product development, entry into new markets, build teams, increase sales|
|Amount of finance||Usually £15k-£500k, but large Syndicates may offer up to £2m|
|Duration of finance||Typically 3-8 years|
|Cost of finance||None|
|Time of finance||2-6 months|
|Business stage||Generally early stage, pre-revenue or pre-profit|
|Annual turnover||Less than £5m|
|Sectors||All sectors, but especially suitable for companies with a scalable business proposition|
|Business stage||Established with assets and a trading history|
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