Generally speaking, startups are more likely to get funding if they have a proven product or service. They are also more likely to stand out if they have a rapid growth rate. However, these are not the only attributes that new and emerging Colorado companies must have to obtain financing. For instance, they must be able to show how their product or service will be faring in five or 10 years.
When creating a company in Colorado, an entrepreneur will ideally create a business plan. This plan should address key issues such as what the company will provide, how it will be funded and how it will grow its revenue over time. Prior to writing a business plan, it is a good idea to spend time researching the industry and talking to potential customers. Doing so can help a business owner gain the knowledge needed to be successful.
Some Colorado business owners who are seeking funding may be so relieved at receiving term sheets from an investor that they fail to do further due diligence. However, researching the venture capitalist ahead of time can give an entrepreneur an idea of how reliable an investment offer may be.
Entrepreneurs in Colorado often look for angel investors after the initial development of their new products or services. Angel investors can be individuals or groups of investors. A typical angel could be prepared to invest between $25,000 and $100,000 with the expectation that the investment will produce a return within three to five years. Angels and investor groups often focus on certain industries in which they possess expertise. Entrepreneurs should research appropriate investors to approach with proposals and prepare thoroughly for those meetings.
In 2004, roughly 5 percent of angel investors were women. In 2016, that number jumped to 26 percent. This is important for business owners seeking capital in Colorado and throughout the country. As the number of women angel investors has surged, the number of companies run by females that have received funding has also increased.
There are multiple financing options for entrepreneurs who have good business ideas. In addition to using their own funds, asking family members and friends to invest or trying to obtain a loan from a financial institution, they can attempt to obtain funds from venture capitalists. Startup entrepreneurs may be able to take advantage of social media to get the desired outcome when seeking venture capital.
Colorado entrepreneurs and others who are looking for venture capital may be able to get it from Sony. The conglomerate corporation has created a $100 million pool called the Sony Innovation Fund. This fund, which was created in 2016, has invested in roughly 25 early stage technology companies in the United States, Europe and Japan. On average, those companies have received millions of dollars each from the fund.
Venture capital firms are raising billions of dollars to put into companies in Colorado and elsewhere. For example, SoftBank has a $100 billion fund and placed $7 billion into Uber alone. Sequoia Capital is looking to raise as much as $12 billion for its global growth fund as well as funds in the United States and China. It is believed that Sequoia is trying to position itself as an alternative to SoftBank for business owners.
Entrepreneurs in Colorado and throughout the country often rely on venture capital to help their companies succeed. In 2017, business owners received $84.2 billion in funding from venture capital firms according to the National Venture Capital Association and Pitchbook. However, there were fewer deals done as the tech industry is going through a period of contraction. This is partially because the median age of companies seeking capital has increased since 2013. The median age of companies seeking Series A funding is about 3.5 years.
Venture capital investment in 2017 reached levels not seen since the dot-com boom that occurred more than 15 years ago. Entrepreneurs in Colorado may be interested to learn that some $84 billion was provided to more than 8,000 business ventures behind a variety of products and services. Sources of funding included angel investors, seed capital specialists and firms specializing in high-risk business ventures.