This chapter addresses the practical aspects of raising venture capital and the characteristics and the problems of each round of investments, starting from the contacts with the investors and ending in the receipt of the money. This chapter is aimed primarily at entrepreneurs who are raising venture capital for the first time and at others who have no experience in this field.
It is important to understand that the process of raising venture capital is complicated and that there are no guarantees of success. From among more than one million companies which are founded in the United States every year, less than 0.1% receive financing from the venture capital industry. Of every 100 business plans received by venture capital funds, fewer than five on average are seriously considered as candidates for investment and fewer than two receive financing. However, because entrepreneurs usually contact several sources of finance, approximately one-third of the companies which are initially rejected by venture capital funds ultimately find one source of financing or another. Moreover, it is usually a small number of companies from among those which receive financing from venture capital funds that generate the majority of the funds' return. As a result of the growing number of plans which are submitted to institutional investors, the process of raising capital after the initial rounds of financing could last many months and requires thorough preparations and groundwork.