Finding the right investors and financial resources for your business

Venture capital firms provide financial support to nurture young, growing businesses. And today, investors are hyperfocused on finding their next investment and deploying capital, says Shawn M. Hoyer, head of venture capital, Global Investment Banking at BofA Securities. “In 2021 alone, venture capital firms raised some $170 billion from investors,” Hoyer says. “That’s money just waiting to be put to work.”

 

Tapping that well of capital requires understanding what venture capital investors are looking for and the help they can provide. “It is also important for emerging growth companies to establish a banking relationship that not only meets their current needs, but also advises and helps them prepare for expanding requirements in a future that can arrive very quickly,” says Dzung Nguyen, market executive and emerging growth executive at Bank of America.

 

Here, Hoyer and Nguyen describe what emerging growth companies—early-stage private businesses looking for significant capital contributions from investors—can expect, mistakes to avoid and how they can find the right venture capital firm and bank to support their enterprise.

 

Where should founders look for investors?

Early on, financing may have come from friends and family, or from seed-stage investors. But as your company grows, you’ll need to consider other sources for long-term strategic financing. For most of the early-stage companies we work with, it will be a venture capital firm—one of the 6,000 or so in the United States—that provides the next rounds of funding. If you start by looking within your community, you’ll often find local firms familiar with your sector that can help you get the initial seed capital. Typically, those investors like to be geographically close to their portfolio companies. Then, once you’re generating revenue and have a clear growth path, you can begin to expand your network to include national firms.

What are venture capital firms looking for?

Venture capital investors understand they’re investing at an early stage. In fact, they are investing in the founder as much as in the company itself. It is key for the investor to understand the story of what makes your company unique—the background of your management team, the total potential market for your product and your plan to capture an outsize proportion of that market. Those are all important factors that illustrate why yours is a great company, not just a good one.

 

How do venture capital firms work with the companies they support?

In the typical model, a venture capital firm will work very closely with a founder and not only provide financing, but often take a board seat at your company. Then the VC provides support by leveraging its own infrastructure and resources, such as marketing, human resources and IT support—whatever your company needs. The pitch is, the VC is going to invest in you and your vision to grow your company to the next level and unlock doors with potential customers. This type of VC financing model is going to have a lot of influence on how your company grows.

 

But not every founder is looking for that level of outside involvement. Another venture capital model that’s less hands-on has emerged as an alternative. These investors may not take a board seat or get directly involved in how your company operates. But they may offer service providers, such as top management consultants, talent recruiters and others on retainer, that can provide resources a company might need. Your choice may depend on what your company needs at a particular stage of growth. It’s up to you to decide what you want from a strategic investor.

 

What should founders look for in a banking relationship?

Emerging growth companies experience high growth throughout their various stages, which causes their banking needs to change rapidly. So it’s important to think about your current needs as well as what’s ahead. In the early stages, you need to work with a bank that understands your local community and can help you navigate that landscape. You need cash management that is transparent, mobile and provides comprehensive reporting, so that you can focus on building the business. As your business evolves, you may identify a need to migrate from accounting software to an enterprise resource planning platform, and so you will want a bank that has the capability to integrate seamlessly with your new system.

 

If you work with international vendors, or expand your sales to markets outside the U.S., you need a dedicated banking team that also operates globally, understands the regulations of local jurisdictions and can facilitate payments in local currency.

 

Finally, the right bank may be able to assist with both employee banking and benefits, helping you attract and retain talent, and personal wealth management and succession planning.

Are there other ways banks can help emerging growth companies?

The right banking relationship can also serve as a strategic advisor for emerging growth companies. For example, as your company develops and you need to raise more significant capital, your banker may help you find potential investors. In addition to venture capital firms and the venture arms of private equity firms, there are also institutional funds, family offices, sovereign wealth funds and ultra high net worth individuals. A global bank has teams covering all aspects of private capital that can advise and widen the scope of potential investors.