What Is an Example of Venture Capital?

What is an example of Venture Capital?

What we’re going to talk about:

• Venture Capital goes beyond financial investment – it provides expertise, advice, and opportunities.
• Venture Capitalists can invest in a business at various stages of its growth.
• From our own portfolio, we look at the example of Teamleader – what we looked for in them, what they looked for in us, and the different facets of venture capital that contributed to their success.

As your business continues to develop, you may start to think of all the Silicon Valley stories you’ve heard and wonder whether it’s time to seek your own investment to boost your growth.

There are, in fact, many ways to acquire funds, but looking for a venture capital firm to partner with may be precisely what your business needs to take it to the next level.

In this article, we’ll go over the benefits of venture capital, the different stages you can get funding during growth, and an example of how venture capital worked for a software company’s expansion.

If you’re a B2B SaaS company in northwestern Europe and are ready to take your business to the next level, let’s talk.

 

What Is Venture Capital?

Venture Capital (VC) typically refers to the funding provided by investors to small or start-up businesses with strong potential for growth. A venture capital fund is a form of private equity raised from private and institutional investors, such as investment banks, insurance companies, or pension funds. Venture capital investing is also known as risk capital or patient risk capital because of its precarious nature.

Although investors can enter during any business phase, most venture capitalists make their investments during the seed and early stages of development.

More often than not, VC comes through monetary contributions. However, the most meaningful aspect of working with a venture capitalist is access to technical, operational, or managerial expertise.

Because of this, the relationship between venture capitalists and businesses tends to go much deeper than that of a company with an angel investor. Since venture capitalists tend to make more significant investments, they are rooting for you to succeed just as much as you want to succeed.

Teaming up with a venture capital firm therefore goes far beyond funding: it expands your network and puts more people in your corner.

 

Features of Venture Capital

Venture Capitalists focus on the long-term picture rather than the immediate scope of a business plan. Venture capitalists can expect an equity stake and capital gains, and usually become limited partners in their portfolio companies.

Innovative projects with a lot of potential are the most common recipients of venture capital investments. Venture capital financing can take the form of equity, participating debentures, and conditional loans. Venture capital can also come in the form of counsel, expertise, contacts, and assistance with negotiations.

If you’re the kind of entrepreneur who has their hands in multiple projects at once, it can help to have someone on your team who can help keep the overall focus on growing the business. You don’t want to have to worry about checking every single box on your own, and venture capitalists can help you navigate business development, growth, management, hiring, and more.

Almost every entrepreneur knows that launching a business will rarely be smooth sailing. To extend that analogy, venture capital simply offers you the resources and more hands on deck for when the water gets choppy, and helps you keep moving forward.

 

Funding

Venture capital funding has become a vital source of capital for companies under two years old. When businesses can’t get financial support from capital markets, bank loans, or other debt instruments, they turn to private funding.

Accepting funding from a venture capitalist usually grants that firm equity in the company, making them limited partners. As such, they are entitled to advise on certain company decisions, adding their expertise to a portfolio company’s venture.

Usually, the VC funding process encompasses four stages of a company’s development:

1. Idea Generation
2. Start-Up
3. Ramp Up
4. Exit

Funding occurs in six stages – or rounds of financing – identified by the phase of growth the company is in. Most entrepreneurs and investors break these stages into two overarching categories: early-stage financing and expansion financing.

⇒ Early-Stage Financing

• Angel Investment – a small investment in an entrepreneur with an idea for a business opportunity.
• Seed Funding – money for the initial development of a brand’s products and services.
• First Round (Series A) – financing for companies who are ready to begin business activities at full operation.

⇒ Expansion Financing

• Second Round (Series B) – capital for small businesses who are operational but not yet turning a profit.
• Third Round (Series C) – also known as Mezzanine financing, these investments are for small businesses who are looking to begin expanding their brand reach.
• Fourth Round (Series D) – also known as Bridge financing, this is for companies looking to move forward with “going public”, or the IPO phase of growth.

 

Acquisition/Buyout Financing

Another popular form of VC called Acquisition/Buyout Financing allows venture capitalists to aid entrepreneurs in acquiring new subsidiaries or buying out a specific product from another company.

 

Venture Capital Example

To give you an example from our own portfolio, Teamleader is a work management tool for SMEs that combines CRM, project management, and invoicing into one platform. Launched in 2012, our shared history spans all the way back to their first round of investment in 2014.

Back then, Teamleader already had a track record but was looking for a way to grow its user base and product offering. To be clear, they weren’t focused on scaling yet, but in expanding into different markets and solidifying their product.

From an investment point of view, we were looking for more than just a great idea. Over the course of several conversations with the company, and through due diligence, we wanted to make sure Teamleader had a strong enough strategy for turning their ideas into a successful, scalable business with international potential.

Teamleader’s interest in us was equally targeted. Specifically, it was our expertise in IT and B2B SaaS and our broad network across the European market. And in this lies the wholeness of Teamleader as an example of venture capital: beyond the funding, we have developed an excellent working relationship. One characteristic of this relationship is our weekly calls, during which we brainstorm over different issues and act as a sounding board for the company’s ideas.

A notable outcome of this dialogue was Teamleader’s decision to upgrade its pricing and packaging, which led to a 22% increase in Average Revenue Per Account (ARPA) for new users. Our collaboration also made it possible for Teamleader to acquire the Belgian software company Yadera in 2019.

 

Venture Capital Advantage

Of course, venture capital provides businesses with the funding they need to grow, although the biggest advantage is that it goes far beyond that access to capital. Specifically, it’s the opportunity to work with experts who invest their time, resources, and belief in a company’s success.

Venture Capital connects new entrepreneurs—or entrepreneurs in a new market—with established businesspeople who can provide valuable insight, assets, and technical assistance to help their business succeed.

Put simply, venture capital turns one company’s success into everyone’s success.

 

If you’re a B2B SaaS company in northwestern Europe and are ready to take your business to the next level, let’s talk.