Everything You Need to Know Early Stage Venture Capital

If you are in the cybersecurity field seeking some security venture capital or will be an entrepreneur at some point down the road, you are bound to run into some of these venture capitalist fellas. Let’s get started:

Venture capital, to begin with, is the type of equity provided by a venture capitalist to you as an entrepreneur to get your startup off the ground in exchange for equity or some role in your company. 

You may need the capital to scale your business, get started or even facilitate the development of new products. If it’s a startup, then early stage venture capitalists are the people you see. Early stage funding, or seed stage funding, is the funding you need to get a startup off the ground.

Basics of an Early Stage Venture Capital Firm

The general standard is a couple of experienced professionals come together to establish a venture capital firm. They don’t necessarily have to be stinking rich to do it – although it doesn’t hurt to be. 

They invest out of their own pocket and/or bring in outside investors. At this stage, the VC firm itself is sort of a startup in every sense of the word. They do everything you would do for your startup including approaching investors, pitching the VC firm idea and most important of all, raising the capital required.

If the VC firm founders find suitable partners, they enter into a limited partnership. The outside investors indeed are investors although they don’t necessarily play a huge role neither do they have a part to play in the management of the venture fund. 

The founders of the VC firm itself now become general partners with unlimited responsibilities and unlimited power. Their job description includes managing the venture fund and taking responsibility for debts.

Next up let’s talk about the funding you are looking to secure:

Characteristics of Venture Capital

If you have made it this far, let’s discuss your new partnership with that early stage venture capitalist.

Long Term Investment

Now, normally, the venture capitalists do not expect a return on investment on their money next week or next month. The investment structure always features a latency period between initial investment and final payout. The time horizon is typically 10 years – so you are in it for the long run. 

This latency increases the liquidity risk ergo VC investments lean towards offering high return to compensate for the insanely high liquidity risk.

Misalignment Between You and the Investor

It is possible that you and the early stage venture capital firm may not see eye-to-eye on everything. For instance, you may be focused with the algorithm to success while the investor may only be interested in the returns.

Having conflicting objectives proves to be a challenge when discussing general issues like how the company should be run.

Illiquid Nature

To add to my point of this investment being long run, venture capital is illiquid. They do not offer a short term payout like stocks or bonds. The long term return is immense and it is entirely dependent on the success of the firm’s portfolio companies.

Ideal Entrepreneur Profile for Early Stage Venture Capital Firms

Venture capitalists look out for some characteristics in an entrepreneur. As an entrepreneur make sure you tick all these boxes or at least some of them: 

• An entrepreneur who tells a compelling story. 
• An entrepreneur who is presentable to other investors. 
• An entrepreneur who is sought after by many other venture capitalists. 
• An entrepreneur with realistic expectations about the outcome and process. 
• An entrepreneur who works towards a goal but at the same time maintains flexibility. 
• An entrepreneur who understands capital and the deal structures involved in the investment.
• An entrepreneur who is relevant in an area of great potential – for instance, cybersecurity is a very promising scope so with a good business plan you can easily secure security venture capital.