Seeking funding to grow your DTC business? What’s the right type of investment for your business?
The exercise of both fundraising and navigating potential exits can be incredibly time-consuming, stressful, and confusing for founders.
𝟗𝟖% 𝐨𝐟 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐚𝐧𝐝 𝐚 𝐪𝐮𝐚𝐫𝐭𝐞𝐫 𝐨𝐟 𝐭𝐡𝐞 𝐔𝐒 𝐞𝐜𝐨𝐧𝐨𝐦𝐲 𝐚𝐫𝐞 𝐜𝐨𝐧𝐭𝐫𝐨𝐥𝐥𝐞𝐝 𝐛𝐲 𝐩𝐫𝐢𝐯𝐚𝐭𝐞 𝐦𝐚𝐫𝐤𝐞𝐭𝐬 (PitchBook Data)
There can be significant differences between private equity and venture capital when it comes to raising capital and exiting startups. In addition, there are far more opportunities for fundraising and exits than in the past.
Additionally, different capital sources are playing a larger role and the various players are shifting how long and at what stage they desire involvement.
𝟓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐞𝐬…𝐃𝐞𝐦𝐲𝐬𝐭𝐢𝐟𝐢𝐞𝐝:
𝟏. 𝐏𝐫𝐢𝐯𝐚𝐭𝐞 𝐄𝐪𝐮𝐢𝐭𝐲: Traditionally, PE investors have focused on companies at a more mature stage in their growth lifecycle when revenues have been established. They will expect a good amount of solid data, due diligence to make a decision on and prefer predictability and lower risk, even if it means lower returns. Rather than being an early seed investor, PE is more likely to be your end game or at least a great part of your exit as a startup founder.
𝟐. 𝐕𝐞𝐧𝐭𝐮𝐫𝐞 𝐂𝐚𝐩𝐢𝐭𝐚𝐥: VC firms typically take much smaller stakes in businesses than their private equity counterparts because they are investing at a much earlier and riskier stage. They too will require due diligence and data to make a decision. VC tends to spread their bets across more companies to hedge bets. However, more are starting to participate in earlier funding rounds as they gain experience and as competition grows.
𝟑. 𝐀𝐧𝐠𝐞𝐥 𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫𝐬 & 𝐈𝐧𝐜𝐮𝐛𝐚𝐭𝐨𝐫𝐬: This category of investment is more likely a fit for early-stage startups. They are willing to participate in the initial rounds of funding because they’re placing their bets on you as an entrepreneur or an idea versus historical data and profits.
𝟒. 𝐅𝐚𝐦𝐢𝐥𝐲 𝐎𝐟𝐟𝐢𝐜𝐞𝐬 – These investors are different from the others because they provide more patient capital, however, they are seeking more cash flow in the short term. or seek cash flow. Investment from Family Offices is on the rise.
For the most efficient and effective fundraising process be sure to define 𝟏) 𝐲𝐨𝐮𝐫 𝐬𝐡𝐨𝐫𝐭 𝐚𝐧𝐝 𝐥𝐨𝐧𝐠 𝐭𝐞𝐫𝐦 𝐠𝐨𝐚𝐥𝐬 𝐚𝐧𝐝 𝟐) 𝐞𝐯𝐚𝐥𝐮𝐚𝐭𝐞 𝐰𝐡𝐞𝐫𝐞 𝐲𝐨𝐮𝐫 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐢𝐬 𝐨𝐧 𝐭𝐡𝐞 𝐠𝐫𝐨𝐰𝐭𝐡 𝐩𝐚𝐭𝐡 𝐭𝐨 𝐬𝐞𝐥𝐞𝐜𝐭 𝐭𝐡𝐞 𝐫𝐢𝐠𝐡𝐭 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐩𝐚𝐫𝐭𝐧𝐞𝐫 𝐟𝐨𝐫 𝐲𝐨𝐮𝐫 𝐮𝐧𝐢𝐪𝐮𝐞 𝐧𝐞𝐞𝐝𝐬.
Different partners will provide different benefits at each stage of maturity. 𝐎𝐧𝐞 𝐬𝐢𝐳𝐞 𝐝𝐨𝐞𝐬 𝐧𝐨𝐭 𝐟𝐢𝐭 𝐚𝐥𝐥.
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