Key Takeaways

  • VC firms seek high-growth, scalable startups with experienced leadership and a clear exit strategy.
  • Before pursuing VCs, explore bootstrapping, grants, or angel investors for early-stage funding.
  • A strong pitch includes traction metrics, customer validation, a realistic growth plan, and a defined competitive edge.
  • VCs prioritize deal flow from referrals—networking and warm introductions are crucial.
  • The process takes months and includes stages such as pitching, due diligence, and term negotiations.
  • Being “VC-backable” means aligning your business model and mindset with investor expectations.

Raising venture capital is difficult and venture capitalists (often referred to as “VCs”) have become very selective about the companies in which they invest. A typical VC may finance only one or two ventures out of a hundred because, for example, the other companies were not in one of its preferred industries, the VC does not see enough potential in the business, or the entrepreneur was not referred to the VC by the right person. If you think your startup might be ready to go after venture capital here are some tips on how to make your final decision and get the process started.

1. Decide on Your Goals

What do you want from your business? Are you trying to take over the world, or do you just want stability? Do you feel strongly about being the sole decision-maker, or are you OK with sharing control?

The main goal of VC firms is to get big so they can generate big returns. If your mission is to be a small but successful family-owned business, venture capital might lead you away from that path. If you're looking to build an empire, venture capital can help you.

Understand What Makes a Business VC-Backable

Venture capitalists are not just looking for good ideas—they want scalable, high-growth businesses with the potential for significant returns. To be considered VC-backable, your startup should:

  • Solve a big, painful problem in a growing market.
  • Offer a defensible competitive advantage (e.g., IP, technology, network effects).
  • Be capable of reaching a multi-million or billion-dollar valuation.
  • Have a business model that can scale rapidly and efficiently.
  • Feature a team with deep expertise or relevant startup experience.

If your startup doesn't align with these characteristics, alternative funding routes may be a better fit.

2. Set up as a Delaware C Corporation

If you're ready to start raising investments, it's time to make your business official. Many investors, including VCs, prefer investing in Delaware C corporations.

Why a C corporation? Although S corporations often have tax benefits for smaller companies, they have restrictions on the number and types of investors. C corporations are unrestricted and give greater flexibility.

Why Delaware? Delaware's laws and tax schedule are highly favorable to businesses. You can incorporate in Delaware even if you primarily do business in another state. Make sure you read our comprehensive guide on how to incorporate in Delaware and launch your startup.

3. Patent your Intellectual Property

If your business relies on new technology or a new and improved process, file for a patent before you start looking for investors. Read our easy guide for protecting intellectual property for startups here. Your patent attorney can help you determine if your idea is too close to something that is already patented or not unique enough to qualify for patent protection. Be aware that you could restrict or eliminate your ability to obtain a patent if you share your idea before it's patented. In addition, make sure no one else has the rights to your idea such as a former business partner or employer.

4. Consider First Raising Money from Crowdfunding, Angel Investors, or Friends and Family

Startups typically raise money in stages. The stages are commonly referred to as: seed money, Series A, Series B, and Series C.

  • Seed money is an early stage investment that may be just enough to get you started. You can read more about seed funding for startups and how to prepare here.
  • Series A investments are usually used to turn you into a more efficiently-operating business and can range from the hundreds of thousands to the low millions.
  • Series B, Series C, and later rounds are used for further growth and optimization as your business matures. Investments in these rounds can be measured in the tens or hundreds of millions of dollars for a successful business.

VCs generally look to invest millions of dollars at once, so this eliminates them for most seed money and many Series A rounds.

If you're in these earlier stages, consider using other methods such as raising money from friends and families, looking for an angel investor, or turning to crowdfunding. Your crowdfunding options include traditional platforms (such as Kickstarter or Indiegogo) or new equity crowdfunding sites that allow individuals to make small, direct equity investments in private companies (e.g., AngelList and Fundable).

Explore Non-Dilutive Funding Options First

Before giving up equity, consider funding options that don't require it. These include:

  • Small Business Innovation Research (SBIR) grants
  • Economic development programs offered by local governments
  • Accelerators and incubators that provide resources, mentorship, and sometimes cash
  • Revenue-based financing, which allows repayment through a percentage of future revenue

Non-dilutive options can strengthen your position before seeking equity-based venture capital funding.

5. Know How Venture Capital Firms Make Money

VCs work in a similar manner as the mutual funds you might have in your retirement account. The VC pools investor money together and invests the lump sum in growing companies.

The fund managers make their money in two ways. One is a management fee that is typically around 2 percent of the size of the fund. The other is by taking a percentage of the returns. This is called carry and is usually set at about 20 percent. The managers don't receive the carry until the investors receive their original money back.

The firm will seek to grow your company in a way that both makes their investors money and gets the managers paid.

Understand the VC Investment Funnel

Venture capital firms review thousands of startups each year but fund only a small fraction. Here's what the funnel often looks like:

  • 1,000+ reviewed startups
  • 100 meetings
  • 10 due diligence reviews
  • 1 or 2 investments

This means that making it through the funnel requires a standout value proposition, solid data, and a well-refined pitch. Getting a warm referral into a firm significantly improves your chances of getting noticed.

6. Be at the Right Stage

The average age of a company receiving funding is around four years. The odds of receiving a deal after eight years are virtually zero.

VCs look at both growth potential and risk. If you're too early, you may have high growth potential, but there's also a higher chance you'll fail. If you're too late, the fear is that you've exhausted your potential for fast growth. VCs are looking for the sweet spot where you've established yourself enough to be a relatively sure bet without having fully exploited your market.

Highlight Your Traction Clearly

Traction is one of the most important signals to investors. Before you approach VCs, be prepared to demonstrate:

  • Consistent user or revenue growth
  • Customer retention and testimonials
  • Partnerships or pilot programs
  • Media mentions or industry recognition

Even small wins can show momentum and validate your market fit.

7. Prepare Documents for Venture Capitalists

When you manage to get in front of a VC, it's time to close the deal. Here are some of the things you’ll need to remember:

  • Elevator pitch: Your first step should be creating a brief elevator pitch to catch their attention. Your summary should be easily understandable by someone with no special industry knowledge. For example, Alibaba was called "The Amazon of China."
  • Executive summary: An executive summary is a one to two page summary of your business in case you aren't pitching in person. It should combine elements of your eligible pitch along with an overview of the most important technical details from your business plan.
  • Business plan: Your business plan contains full details of how you plan to grow your business, your current financial status, how you will use an investor's money, and how investors will get a return. Be sure to include summaries, headers, and a table of contents as most VCs will only skim the plan unless they're already decided they want to make an investment.
  • Presentation/pitch deck: You should create a slideshow that presents the highlights of your business plan in the form of a story and includes visuals such as charts and pictures of your products. Even if you aren't pitching in person, this is still an excellent way to make a compelling case to invest in your company.
  • Do not bring an non-disclosure agreement (NDA) to a VC: Most VCs will simply refuse to sign an NDA because NDAs can create too many legal headaches for VCs especially when a VC hears pitches from similar businesses. VCs also are much more interested in having you do the work than trying to grow your idea themselves.

Avoid Common Pitch Mistakes

VCs hear hundreds of pitches—avoid the most common errors, including:

  • Overinflating your market size without clear segmentation
  • Skipping over competition analysis or claiming "no competition"
  • Being vague about how you'll spend the funding
  • Having unclear or unrealistic financial projections
  • Failing to clearly define your exit strategy

A strong pitch is concise, data-driven, and transparent about both opportunities and risks.

8. Build a Team of Advisors

By the time you reach the venture capital stage, your business will be moving faster than you can keep up with on your own. You'll need to make many important decisions quickly that could decide the success or failure of your business. And, so, you need a good team working with you.

At this point, your team should have skilled professionals knowledgeable about the venture capital process, your general legal and accounting needs, and your specific industry. Fill in the gaps by bringing in key employees or savvy investors, or by hiring professionals on a fractional basis.

Ensure Founders Are Aligned

Venture capitalists often evaluate the founder relationship as closely as the business model. Misalignment between co-founders—on goals, values, or equity splits—can be a major red flag.

Before raising funds, make sure:

  • Roles and responsibilities are clearly defined.
  • There is a clear decision-making process.
  • All co-founders are on board with the growth and exit strategy.

A cohesive, committed leadership team builds investor confidence.

9. Learn Your Capitalization Table

Your capitalization table identifies the owners of your company, how much they own, and what kind of shares they own. It also helps you track authorized versus issued stock, granted options versus your reserve options pool, and other unvested rights. Investors want to know exactly what they're getting in return and if anything will potentially dilute their investment.

10. Select Your Target

VCs often have different focuses, such as industries, geographic regions, and company sizes. For example, a smaller VC might be looking to make ten $500,000 investments, while a larger one is looking for investments in the $5 million range. Others might focus on slightly newer or slightly more established companies.

Figure out where you stand in the market so you can target VCs that are looking for companies like yours. Avoid sending email templates and instead write custom messages tailored specifically to each venture capital website with their specific preference. The National Venture Capital Associate website has more in depth information about venture capital, advice, statistics, and lists of venture capital associations.

The best approach is to find someone who can introduce you to the VC. Networking opportunities are sometimes available through alumni and business associations, or through contacts at companies in which the VC has already invested.

11. Know Your Timeline for Growth

VCs aren't buy-and-hold investors. Their ultimate goal is to sell your company to a bigger one or to position you for an IPO. This is when the VC make most of its money.

The target date for a sale is usually within 10 years of your launch, and some VCs prefer to sell even sooner. This could put pressure on you to accelerate your growth now even if you think a slow-and-steady approach might be better in the long term.

For the best results, the milestones in your business plan should already match the typical venture capital timeline.

Plan Your Exit Strategy Early

Most VCs expect a return within 7–10 years through one of two exit routes:

  • Acquisition by a larger company
  • Initial Public Offering (IPO)

Your business plan should reflect how you intend to reach an exit and what milestones you'll hit along the way. Not having an exit plan can be a deal-breaker.

12. Set Your Budget

Venture capital shouldn't be seen as a prize or milestone on its own. It's just one option you have for raising money for your business.

Raise venture capital only when you don't have the funds you need to meet your next business objectives on your own. Before asking for venture capital, determine exactly how much you need to meet those objectives. Your ask should be based on that amount and not the most you think you can raise. Hang on to as much equity as you reasonably can for yourself or future funding.

13. Review the Term Sheets Carefully

As you move into the later stages of a venture capital deal, the VC will present you with a term sheet containing the full terms of the deal. This goes into the small details beyond how much of your company they'll own and how much they'll invest. Think of it like the fine print when you're buying a car but with much bigger consequences.

Some of the items that may be included in the term sheet include:

  • Valuation
  • Investor rights
  • Board seats
  • Option pool
  • Voting rights
  • Liquidation preferences
  • Founder vesting schedules
  • Founder revesting of shares
  • Veto rights
  • Preferred stock
  • Convertible notes

Each individual item contains nuances that could drastically alter your rights or the true value of a potential deal. You should always have a lawyer review a term sheet and be involved in negotiations.

If a VC says a term you're uncomfortable with is nonnegotiable, don't be afraid to walk away. Each VC has their own way of structuring deals, and another firm may be a better fit for you.

14. Prepare for Due Diligence

If a VC likes your initial pitch, it will conduct an exhaustive review of your business. Your financial statements, business structure, facilities, and key employees will all be under the microscope.

The purpose of due diligence is both to confirm what you said in your pitch and to dig into the smaller details that weren't discussed in-depth at earlier meetings. By this point, you should be operating under a formal accounting system and have taken steps to comply with all legal requirements imposed on your business.

You will be given little time to correct any lingering issues before a deal falls apart, so you should begin preparing for this review well before you dive into the venture capital process.

15. Do Your Own Due Diligence

Due diligence is a two-way street, not a roadblock to a deal. You also want to make sure a particular VC is right for you.

Even though you've done your initial homework, dig deeper into how the VC's previous investments have gone. Don't forget to look beyond the numbers to see whether founders felt they were treated fairly or were pushed out of the company. You're looking for a partnership as much as you're looking for funding.

16. Get Legal Assistance

You should rely on your instincts when making business decisions, but make sure you also have the right information. Many factors will determine whether a particular move is right for you, such as your business structure, securities regulations, local laws, and any special issues impacting your industry.

Understand Investor Expectations and Control Rights

Investors may ask for special rights as part of their investment, including:

  • Liquidation preferences (they get paid first in a sale)
  • Anti-dilution protections
  • Board seats or observer rights
  • Veto power on major decisions

Understanding and negotiating these terms carefully is critical. While some protections are standard, overly aggressive terms can limit your ability to lead the company.

For guidance through this process, UpCounsel can connect you with experienced startup attorneys who understand venture capital structures and investor rights.

Frequently Asked Questions

  • How do I know if my startup is ready for venture capital funding?
    Your startup is likely ready if it has a scalable model, clear market traction, a capable team, and aligns with typical VC expectations for growth and exit potential.
  • Can I raise venture capital as a sole founder?
    It’s possible, but more difficult. VCs prefer teams with complementary skills and a demonstrated ability to execute. A sole founder must prove they can lead and scale effectively.
  • What’s the difference between angel investors and venture capitalists?
    Angel investors typically invest their own money during the early stages of a startup, while venture capitalists invest pooled funds in startups with high growth potential, often during later rounds.
  • How long does the VC fundraising process take?
    The entire process—from initial contact to final funding—can take 3 to 6 months or longer, depending on the complexity of the deal and readiness of your documentation.
  • What happens after I get venture capital funding?
    You’ll typically be expected to scale quickly, provide regular updates, meet performance milestones, and prepare for an eventual exit. You may also need to consult investors on key decisions.

If you decide to make a deal, there will also be a ton of complex legal paperwork to complete. To get help with this process as well as general advice along the way, use UpCounsel to find an attorney with experience helping growing businesses in your area. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures and Airbnb.