What Is Institutional Venture Capital?

Institutional Venture Capital

If you’re like most people, you probably don’t know anything about institutional venture capital, although you may have a vague idea on what venture capital is. Well, you don’t need to worry because in this article, we’re going to walk three what venture capital is and is not. So let’s get started.

Institutional venture capital is funding by professional venture capitalists. The amount if rather large when compared to ordinary venture capital, with the fund willing to invest between $25 million and one billion dollars in growing companies.

In order to qualify for institutional venture capital, you need to be a rapidly-growing company that has the potential of earning at least $25 million annually within five years after the infusion of capital.

US venture capital firms every year invest between five to ten billion dollars per year in different businesses. But they don’t just invest in any company. Most of the dollars invested go to the companies that are already in the portfolio of the venture capital.

But the good thing about it is that the money is not limited to an industry or a product. It can be used for multiple purposes, from developing a product to expanding an already profitable service or product.

If you want your business to be funded by a venture capitalist, you need to know that money from a venture capitalist is NOT free and equity is typically required. In other words, if you’re going to convince a venture capitalist to invest your business, you need to be willing to give the venture capitalist a percentage of your company. In general, the earlier the investment is made, the more equity is required.

Aside from being not free, institutional venture capitalists are also very choosy when it comes to the company they invest in. Even a 90% equity is no guarantee that an institutional venture capitalist will be willing to put the money down.

But there’s a very good reason for this – the amounts of money available for businessmen are no small amounts. They range from $500,000 to $10 million.
Institutional Venture Capital
How do you get venture capitalists to invest in your business? There are several ways that you could do it. One, you could take the so-called shotgun approach and send a proposal to as many venture capitalists as you can. Just make sure that the venture capitalists that you approach would be interested in your offer.

According to one venture capitalist that we talked to, nine out of ten proposals that they receive get rejected simply because the proposals are irrelevant, or more precisely, do not fit the investment criteria of the venture capitalist.

Criteria in this case refers to different factors including amount of capital, the industry the company belongs to, the company’s stage of development, its geographic location, among others.

Aside from the shotgun approach, there are many ways that you can approach venture capitalists. If you want to know what these approaches are, you can read more about them online.