DesignKompanie

Guide· 9 min read

What is venture funding?

Venture funding is money invested in a young, fast-growing company by venture capital firms in exchange for a share of ownership. Here is how a round works from pre-seed to growth, what you give up, how founders actually get venture funding, and when it is the wrong kind of money.

What is venture funding?

What venture funding is

Venture funding is investment from venture capital firms into young private companies that could grow very large. The company gets cash to hire, build and sell faster than revenue alone would allow. In return the investors get equity, usually preferred shares, and a say in some major decisions.

It is not a loan. There is no repayment schedule. The investors make money only if the company is later sold or listed for much more than they paid.

Venture funding stages

  • Pre-seed: the first outside money, often from angels and small funds, to build the product and find the first customers.
  • Seed: money to find product-market fit, with early revenue or strong usage as evidence.
  • Series A: money to turn a product that works into a business that scales, usually led by a venture firm.
  • Series B and C: money to expand into new markets, products and teams once the model is proven.
  • Growth rounds: large investments ahead of an acquisition or public listing.

Each stage asks for different evidence. See our pages on pre-seed, seed and Series A decks for what each round expects.

How a venture round works

  1. Outreach and pitching. Founders approach investors, usually with a deck, and hold first meetings.
  2. Partner meeting and diligence. Interested firms dig into the numbers, customers, product, team and legal set-up.
  3. Term sheet. A lead investor offers a term sheet: the valuation, amount, share class, board seats and investor rights.
  4. Filling the round. Other investors join on the same terms.
  5. Closing. Lawyers draft the final documents, everyone signs and the money arrives. From first meeting to close usually takes two to four months.

What venture funding costs you

  • Ownership. Each priced round commonly costs founders fifteen to twenty-five percent of the company.
  • Control. Investors often take board seats and approval rights over major decisions.
  • Expectations. Venture investors need a very large outcome. Growth becomes the priority, sometimes over profit.
  • Preference. Preferred shares usually get their money back first in a sale, which matters if the sale price is modest.

How to get venture funding

  1. Build evidence. Paying customers, growth, retention or a strong pilot. Evidence is the single biggest factor.
  2. Prepare the materials: a clear pitch deck, a simple financial model and a short data room.
  3. Build a target list of firms that invest at your stage, in your sector and at your round size.
  4. Get warm introductions through founders they have backed, angels and advisers.
  5. Run a tight process: pitch many firms in a short window so interest builds together.
  6. Negotiate the term sheet with a lawyer who does venture deals.

Practise the thirty-second version first. See how to write an elevator pitch.

When venture funding is the wrong choice

Venture money suits companies that can become very large very quickly. Many good businesses cannot, and should not try: consultancies, local services, steady niche products. For them, revenue, bank loans, revenue-based financing or a few angels keep ownership and control where they belong.

If venture funding is right for you, we design fundraising decks for every stage.

Questions

The answers we give most often.

What is venture funding?
Venture funding, or venture capital funding, is equity investment from venture capital firms into early-stage, high-growth private companies. The company receives cash; the investors receive shares, usually preferred shares with extra rights.
How do you get venture funding?
Build evidence that customers want your product, prepare a pitch deck and a simple financial model, identify the firms that invest in your stage and sector, get warm introductions where you can, pitch, and negotiate a term sheet with the investor who leads the round.
What is venture investment?
Venture investment is the same thing seen from the investor's side: buying equity in young private companies with high growth potential, accepting that most will fail in exchange for the chance of a very large return from a few.
How much equity do you give up in a venture round?
Commonly fifteen to twenty-five percent per priced round in the early stages, though it varies widely with the valuation and the amount raised.
Is venture funding right for every startup?
No. It suits companies that can grow very large very fast. A profitable service business or a steady local company is usually better served by revenue, loans or angel money, and keeps control.
What Is Venture Funding? How It Works & How to Get It