Venture capital is a form of private equity investment, where a business receives unsecured funding in exchange for a share of its equity. The aim of venture capital as a field is to make investments in early-stage companies with an aim of profitably exiting their investment at a later stage (usually within 5-10 years). Within the industry, venture capital firms tend to invest in new companies with high growth potential profiles or those that indicate relatively good growth over a short timespan.
Venture capital is seen as a high risk asset class, as the majority of VC investments fail. This high rate of failure is factored into the investment model of venture capitalists, the typical aim of a VC fund is for 1 in 10 investments to be exited profitably, with that exit/s being so profitable that it cancels losses made on the funds other investments and produces a healthy return for the venture capital firm and its investors (a VC can have multiple funds investing in different areas / stages of business).
Venture capital can be a great source of finance for businesses, however getting venture capitalists to invest in a company or startup can also be one of the biggest challenges an entrepreneur can face. With this in mind and to help you find the right potential VC investor, below we’ve put together a detailed list of active venture capital firms operating in the UK and London.
Investees
VC investment is best suited to entrepreneurs running high potential growth businesses who are happy to relinquish some control and accept a smaller piece of pie in the hope that the eventual pie will be much larger than they could have achieved on their own. Taking on a VC is not for the faint-hearted – in return for their investment they expect total dedication to the business from the entrepreneur.
Venture capitalist Jon Moulton, for example, famously refuses to invest in any business run by someone who has been divorced more than once, on the grounds that their complicated private lives will be too much of a distraction to building a successful enterprise.
It is important that you approach the growth of your company realistically, as not all businesses are suitable for VC funding. VCs look for truly game-changing ventures that show the potential to revolutionise an industry. If you see there is the potential to grow a business to be worth in excess of £100million, then VC funding is for you. But remember: very few businesses have this extraordinary potential, and there is a vast array of alternative funding routes available to suit all different types of business, including crowdfunding sites and angel investment networks.
Sizing Investments
VC firms are generally interested in investing between £800,000 and £5 million in a business, although some early stage funds will consider investments of £250,000 and up. Different firms adopt different investment criteria, some specialising in particular stages of growth – start-up, early stage, later stage – and others in different industry sectors (our list below contains early, mid and late stage VC funds).
Pros & Cons of VC
- The level of funding and expertise a venture capital firm can provide will typically help your business grow at a much faster rate than would have been possible without.
- Most VCs can bring invaluable skills and expertise to your business and provide useful business contacts.
- You will have to be prepared to lose some control over your business. While the VC investment team will not be involved in the day-to-day running of your business, 99% of the time they will appoint someone to be a member of your board and will expect to be involved in the strategic direction of the business.
- You may sometimes feel as though you are working for the VC rather than for yourself.
Alternate Funding
While VC funding might be right for your business, there are also other options worth exploring, predominantly in financing. Overall, there are two primary forms of financing available to small businesses: debt (business loans) and equity (VC, P2P lending, crowdfunding, angel investing, grants).
