Every company was once a startup. In 1998, Larry Page and Sergey Brin, the founders of Google, received an initial investment of US$100,000 from Andy Bechtolsheim, co-founder of Sun Microsystems, nowadays known as the “golden boy” of Google. This funding allowed them to incorporate Google as a company officially and kickstart their operations.
Just as this investor’s capital was crucial for Google’s early growth, venture capital funding is essential for young companies to transform their innovative ideas into successful businesses.
Keep reading to learn how venture capital funding works & how to secure it for your startup!
Table of contents
Understanding venture capital funds
Venture capital, known as VC, is a source of funding for new companies, with high growth potential. It helps new companies and startups set themselves up in the market & strengthen their business model by obtaining financing.
Venture capital funds provide funding to fuel innovation and growth, often in exchange for a small percentage of equity in the company. The goal of these funds is to create stable and consistent returns over the long term by investing in and managing a diverse portfolio of real assets in one specific or multiple industries. These assets are spread across different sectors and locations.
In short, a venture capital fund is a type of investment that offers an alternative to a traditional fund. These are the 3 key features that define it:
- It’s a long-term investment.
- It has a high level of risk & high reward potential.
- These funds are managed by institutional investors or private individuals.
Unlike venture capital funds, corporate venture capitals (CVCs) are investors representing large corporations. Often, companies establish CVC funds to invest in startups and technologies aligned with their business strategy. In addition to providing capital, CVCs also bring industry knowledge, access to potential customers, and the ability to build networks.
Stages of VC funding
Venture capital funding is divided into 6 main stages. Here’s a quick recap of all of them:
- Pre-Seed: This stage marks the starting point of the startup journey. After identifying the business opportunity, the entrepreneur starts to define an idea for creating a product or service. From a prototype or test version, it is possible to get to know the interest that it could have in potential consumers. Other steps in this phase include assembling the initial professional team, laying down the legal foundations, and strategizing.
- Seed: Investment in this phase is directed toward product development, validation, and conducting operations to promote it. Seed-stage venture capitalists (VCs) often participate in multiple rounds of investment. At this point, a critical aspect for advisors to consider is the founding team behind the company, the team leader must have a clear vision for the project and its mission.
- Series A: In this stage, companies usually complete their business strategies, such as adding new features to their solution, and create presentations that focus on the alignment between their product and the target market. Here the investors are looking for companies with great ideas and a strong strategy for turning that idea into a successful, money-making business. In this round, companies must have a plan for developing a business model that will generate long-term profit.
- Series B: This stage is about proving the performance of the startup solution when the company is ready to scale. Whereas Series A investors will measure the solution’s potential, for Series B they want to see actual performance and evidence of a commercially viable product or service to support future fundraising.
- Series C: If your company reaches the Series C funding stage, it is on a growth path! To achieve this, it must have achieved success and obtained incremental funding (getting more money bit by bit) that will help it build new solutions and reach new markets. Key information: to receive Series C and consequent funding, a company must be well-established with a strong customer base.
- Bridge: Entering the bridge stage — it’s also called the pre-public stage — means your startup has matured into a full-fledged, viable business. In this stage, many investors will probably opt to sell their shares and realize a substantial return on their investment. With the original investors leaving, that opens the door for late-stage investors to come in hoping to gain from an IPO (Initial Public Offering) or sale.
The role of venture capitalists
A venture capitalist is an investor who provides funding to startups with high growth potential in exchange for an equity stake. Venture capitalists typically seek companies with a robust management team, a sizable potential market, and a distinctive product or solution with a significant competitive edge, as well as the chance to influence the direction of the company.
The benefits of VC go both ways: venture capitalists who invest in companies receive interest in their investments, and startups in their early stages receive the funding and mentorship necessary to achieve their growth strategies. It’s a win-win!
Some of the most well-known venture capitalists are Jim Breyer, an early investor in Facebook, and Peter Fenton, an investor in X (formerly Twitter).
How to get venture capital funding
Obtaining venture capital is no easy task, as it involves competing with other companies also looking for funding & convincing highly selective investors. Here are some key strategies to make it easier:
- Explore the market: The first step, and one of the most crucial ones, is identifying venture capital firms whose interests align with your business. For instance, if your solution solves a pain point in the construction industry, you may seek VC & CVC firms specializing in Contech or Cleantech.
- Identify your target investor: Finding the right investor for your business is essential. Are you looking for a solely financial investor or a strategic one as well? Venture capital funding isn’t a one-size-fits-all solution. It’s typically better suited for businesses with strong growth potential, cash flow & a solid team.
- Reach out to your target investors: Try searching VC firms and investors on LinkedIn to see if there are any connections between the firms and people you know. If you find a connection, you could ask for an introduction or send an email directly to each VC. Moreover, venture capitalists often attend industry conferences and events. Networking and attending these events are a great way to forge solid and meaningful relationships.
- Develop a strong pitch: Communication is key. When reaching out to potential investors, make sure to get straight to the point and capture their attention effectively. Introduce yourself and provide a brief overview of your business, highlighting the problem you are solving your value proposition, and what sets you apart. Additionally, emphasize the performance of your business so far, showcasing any notable milestones reached.
- Negotiate: The moment of truth has come. Once you have found a potential VC or CVC to team up with, it’s time to negotiate. In this phase, term sheets play an essential role, they serve as preliminary, non-binding agreements where the key terms of the VC investment are outlined and agreed upon before any official documents are signed. These term sheets include pivotal points such as how much the VC firm is offering to invest and how much equity it looks for in return.
Venture capital funding in the construction industry: The impact of Cemex Ventures
Cemex Ventures is the CVC and open innovation unit of Cemex, meaning we actively explore, accelerate, partner with, and invest in promising startups to fulfill our mission to foster the construction industry revolution. As a financial & strategic investor, our goal is to generate strategic returns and elevate the overall value of the parent We are looking for the most promising startups with groundbreaking solutions to make the construction industry more sustainable, efficient, agile, & disruptive.
Does your startup fall within this scope? Construction Startup Competition is the biggest opportunity to propel your solution to the next level – apply now and get in contact with us – applications are open until June 30.
