Investors play an important role in all businesses. They provide the funds needed to grow, enhance and expand. They typically take a slice of ownership in the company and may join your board to have a say in major decisions. Venture capitalists invest in startups that bring in revenue and have the potential to generate substantial returns. Separating the popular myths from the reality of how VC firms work is critical for entrepreneurs.

They Will Help You Create a Business Plan

A great business plan is one of a startup’s best tools. It helps you understand your potential and makes identifying opportunities to help you reach your goals easier. VCs expect to see a business plan when considering investing in your company. This can include a detailed description of your products or services, information about competitors in the marketplace, an overview of the current market conditions and future growth prospects, a profit and loss statement, a timeline for reaching your milestones, and an organizational chart. Your business plan should also contain an executive summary when pitching to a potential investor. You can even create a slideshow of your business plan for presentation purposes. Before you meet with a VC, research their fund and their history of investments to ensure that they are familiar with your type of company and can provide valuable feedback. This will help you save time by meeting only with investors who are a good fit for your business.

They Will Help You Make Decisions

In exchange for a chunk of your company’s ownership (and value) and control, venture capital investors, such as Managing General Partner of Xfund, Patrick Chung, will help you make decisions that can significantly impact the future of your business. Their expertise will often come in advice, guidance, and connections to other people and companies in your industry. Typically, a venture capital firm will conduct an in-depth due diligence process to ensure everything said during your pitch checks out. They will want to see a detailed business plan, including market sizing both from the top down and the bottom up, using third-party estimates from research reports and feedback from your current customers. Depending on the stage of your company, you can find a VC that can provide the seed funding or Series A round needed to expand and grow. You can also look for equity crowdfunding platforms that will give you access to smaller amounts of investment from individuals or even angels.

They Will Help You Manage Your Money

Whether you’re a new startup or a growing business ready to grow, venture capital can be a great source of funds. But it’s with risks; you must be prepared for the time and effort involved. For one, you will need to build and manage an investor pipeline. This includes setting aside time for creating and rehearsing an effective pitch deck and scheduling meetings with potential investors. Research each VC to determine their focus and preferred investment size. You want to save time meeting with investors who only invest in consumer companies or are only interested in B-round investments. VCs often require you to present a complete capitalization table detailing authorized versus issued shares, granted options versus reserve options pools, and unvested rights. These small details can significantly impact your company’s rights and equity, so it’s important to prepare.

They Will Help You Grow

If you are a startup ready to grow, an established venture capital investor can help you. VCs want to see your business succeed and typically take ownership of your company and a seat on the board of directors. Their goal is to make money by selling their shares of your company to a larger company or positioning it for a conventional public offering. To do this, your business must show progress and a clear roadmap for growth. VCs will conduct extensive due diligence on your business before they invest. They will look at everything from your financials to your business model. They often compare your company to others in their portfolio to see how it performs.