Money Matters

VC funding: How to get venture capital investment for your business

Could your business win venture capital investment to grow and scale? Discover some top tips to help SME owners secure VC funding.

Venture capital investment is private funding for small to medium companies and startups that typically have high long-term growth potential, and can scale quickly and globally.

Investors are interested in private, unlisted companies operating in attractive industry sectors.

This type of investment is an important source of funding for startups that don’t have access to capital markets and are relatively high-risk but have the potential for considerable returns on investment.

This article provides advice to owners of small and medium-sized businesses who are seeking funding to grow their companies and want to explore the possibility of venture capital investment.

It covers the following:

What is venture capital?

Venture capital (VC) investment is private funding by specialist professional firms who invest in ambitious, fast-growing companies that have the potential to develop into significant businesses.

Typically, businesses that attract VC investment are ready to scale, their products or services are ready to launch, or have launched, the market is clearly defined and revenue has already started to grow.

The business now needs significant capital investment to develop technology, hire key team members and market its products and services to maximise its initial growth phase.

VC funding rounds start with Series A, followed by Series B, etc, and as part of the contract with the investor or investors, the company is expected to reach certain milestones, and later rounds of funding will depend on whether or not these milestones are met.

What’s the difference between venture capital and other types of finance?

From banks offering loans to the government providing grants, and the likes of crowdfunding and angel investment, there are a number of funding options open to you.

Unlike banks or other more traditional lenders, venture capital investors are not looking for a repayment plan for their investment.

Instead, they negotiate an equity stake or percentage of share capital in your company in return for the investment.

Typically, VC investors in startups provide funds in exchange for an equity stake of between 25% to 50% in the business.

Investors are looking for a high return on their investment over five to 10 years. That’s why they look for companies that have the potential for one of the following:

  • Becoming a publicly listed company
  • Attracting a trade sale – where another company buys out the business and continues trading
  • Selling their stake to another company at a considerable profit.

Financial investment is the main goal of a business seeking VC funding. However, the VC investor is likely to add considerable value to the business in other ways.

The investor typically chooses businesses that are relevant to their own experience and expertise, and the investment will give additional credibility to the company.

The investor will likely provide mentorship to the management team and may also seek to be a member of the company board.

How much money can be raised with venture capital?

The amount you can raise will depend on a number of factors, including:

  • The valuation of your business and potential to grow
  • The potential to scale quickly and globally
  • How close to launch are your products or services.

As described above, venture capitalists invest in startups in exchange for an equity stake of typically 25% to 50% and look for businesses that want to raise at least €500,000.

The maximum amount will depend on the uniqueness of your product or services, the projected market share, how much the VC firm is able or willing to invest, the risk of exposure in the sector (investors might be wary of putting all or most of their investment into businesses in the same sector).

Before making the decision to seek VC investment – you should first evaluate your company to see if it’s likely to attract investment. Investors look for the following in any potential business:

  • Seeking to raise €500,000 or more
  • Operating in sectors with fast growth potential
  • Have an experienced management team with a high level of skills and expertise
  • Products or services must provide a specific and in-demand solution to a clearly identifiable problem.

What sectors are venture capital investors looking at?

Some venture capital firms specialise in specific sectors, for example, software, healthcare, or fintech, while others might have a broader remit.

Typically, the top sectors that attract this type of funding are:

  • Software
  • Biotechnology or life sciences
  • Media and entertainment
  • Information technology
  • Financial services
  • Medical devices and equipment
  • Consumer products.

However, even if your business model and/or products and services don’t fit into any of the above sectors, if it has the potential to grow quickly, scale globally, and your product or service solves a clearly identified problem with a potentially sizeable market, you could potentially raise investment in this manner.

According to the Irish Venture Capital and Private Equity Association – a representative body for VC and private equity firms on the island of Ireland – companies in Ireland raised €398m in Q2 2022.

The following sectors attracted the most VC investment in Q2 2022:

  • Life sciences (25%)
  • Fintech (21%)
  • Software (20%)
  • Consumer goods (15%)
  • Artificial intelligence (AI) and machine learning (5%)
  • Deeptech (4%)
  • Information and communication technology (ICT) and the Internet of Things (IoT) (1% each)
  • Others (8%).

Where can business owners find venture capital investors?

In Ireland, there are some state bodies that assist companies to secure VC funding, as well as organisations that provide information and support on this form of financing.

  • Enterprise Ireland assists companies seeking to raise VC funding to grow their businesses with contact details and information on areas of interest for the main Irish VC capital companies. Your Enterprise Ireland representative can facilitate introductions to relevant funds which match your sector and areas of interest and/or expertise. It has a list of VC firms currently investing in Ireland-based startups.
  • The NDRC national startup accelerator programme – is aimed at tech entrepreneurs based in Ireland that have global potential. The organisation provides different programmes and supports, including guidance and support on how to access VC funding.
  • The Ireland Strategic Investment Fund is operated by the National Treasury Management Agency and its website has a useful ‘search by sector’ function to identify potential VC funds for your business.
  • Google Ventures provides investment for companies in the following areas: Life sciences, enterprise, consumer, frontier tech.
  • Vest Bee – a platform that matches startups with investors has a useful resource of the top VC funds in Ireland and a brief description of each one, including the sectors they operate in and contact details, etc.
  • Other sources: Speak to your accountant or legal advisers. Many of the bigger accountancy firms and legal practices will also have contacts and clients who are looking for an investment opportunity.

What businesses need to do to get venture capital investment

Most venture capital investors are looking for a business that has a relatively high valuation, that has already started to grow, and needs significant investment to move to the next level.

So how does your business qualify for VC funding? Investors are looking for the following:

  • Proprietary intellectual property, for example, technology or life sciences product
  • A potentially sizeable market, preferably global
  • A core management team with demonstrable skills, expertise and experience
  • A scalable business model
  • The ability to exit the business within five to 10 years with a significant return on investment.

Before seeking VC investment, consider the following in relation to your business:

  • Does your business have high growth potential?
  • Is your core team ambitious and ready to grow quickly?
  • Does your company have a product or service with a unique selling point or competitive edge in the identified market?
  • Can your product or service be protected by intellectual property rights?
  • Can your core team demonstrate relevant industry experience?
  • Does your team have the relevant skills to fully deliver on the business plan?
  • Are you willing to sell some of the company’s shares (25% up to 50%) to a private equity investor in return for significant capital investment?
  • Is there a realistic opportunity for shareholders to exit the business within five to 10 years to realise their investment?
  • Would you be willing to leave the business at some point if it is deemed in the best interest of the shareholders?

Tips to increase the chances of winning venture capital

To maximise your chances of winning VC funding, you’ll need at least the following:

  • A business plan
  • A pitch deck or showcase of your business idea or product or service
  • A minimal viable product (MVP) or beta version of your product or service.

Depending on the investor, they might require your business to be ready to scale.

Have your financial projections in the short-to-medium term worked out and include a cash flow forecast and business continuity plan.

You should also have a valuation of your business that reflects its commercial viability, unique selling points, scalability or solution to a universal problem.

Other documents you should include are:

  • Profiles of the management team, including experience, expertise and skills
  • If you are applying for a patent, provide proof (or supply the patent if you already have it)
  • Expressions of interest from potential clients who are looking for larger orders.

If you decide to seek VC investment for your company, you must first ensure you approach the right people. Generally, a VC investor and investee should align on one or more of the following:

  • Area of expertise
  • Area of interest
  • Current availability of capital.

How to win venture capital funding

To give yourself the best chance of winning funding, consider the following:

  • Introduce your business to relevant VC firms as early as possible: Ideally set up a mailing list so you can update interested parties on developments. If a VC fund is already aware of your business before you are ready to grow, it could give you a competitive advantage over other companies.
  • Have you got the right team? A strong core management team with relevant experience and skills is one of the essential criteria for VC investors.
  • Is your business market well-defined? Do you have a product or service that is ready to launch? Do you need capital to grow your team or scale your business?
  • Refine your pitch: Keep your pitch simple and focused.
  • Your business valuation should be ambitious but realistic: VC firms are looking for businesses that have the potential to significantly increase in valuation and have a clear path to grow.
  • Be clear on how you will allocate funding when you get it: Technology development, hiring skilled employees, sales and marketing to build brand awareness and client relationships.

Final thoughts on getting venture capital investment

If you have already pitched for VC funding and been unsuccessful, don’t give up just yet.

Think of the experience as a learning experience that can help you to improve your pitch next time.

Ask for feedback from the investors. Their expert advice will be invaluable and can help you to identify weaknesses in your pitch and business, enabling you to improve and be successful later on.

It could be that the VC investor liked your pitch, but the timing or fit wasn’t right – and they might be able to introduce you to another more suitable investor partner.

Follow the tips in this article, keep working on your pitches and processes, and with a bit of luck (and hard work), you’ll get the investment you’re seeking for your business.