Choosing Private Equity or Venture Capital For Your Startup

Startups take money, and FinTech startups are no exception to this rule. When it comes to finding backers, venture capital and private equity are the major areas entrepreneurs need to examine.

Venture capital is the first area many entrepreneurs consider and there are pluses to this option.  Namely, venture capitalists are well connected and knowledgeable in the business field, an important element for startup owners that may be lacking a business background. For people entering the startup process for the first time, this safeguard may make the process less daunting. The downside(s), however, is the potential loss of control that can come once others have a stake in your business. As these venture capitalists will be well versed in the business field, you could face real complications if they decided they wanted a greater stake in the company.

Although private equity doesn’t have the pedigree that venture capital does, it is an ever growing presence in the FinTech financing field. In 2015 private equity investors closed a record number of FinTech investment deals and this number was 79% higher than the investment tally in 2012. Despite this increase in investment interest, private equity may not be the ideal option for your startup. One of its major hindrances for startups is the fact that private equity tends to deal in much larger amounts of money (i.e. deals below $100 million are rare).

Say you decide to explore the venture capital option in order to obtain seed-stage financing. This is a good option, considering this partnership has been shown to influence innovation and reach the public stage sooner. However, if you want to successfully obtain funding, you need to make contact in the right way. Your best bet is to use the connections you already have to meet people in the venture capital market. Make sure your proposal is tailored to the company and take your approach one company at a time. Remember that the connection won’t be instantaneous and you’ll be dealing with a lot of back and forth. Make sure you have the information ready for each step of the way (from the elevator pitch to the full business plan).

The good news is there are venture capitalists that specialize in FinTech. Some, like Accion, devote all their attention to this financial field. Others, like iNovia Capital, also fund other segments of the market but do partner with FinTech startups. By approaching these venture capitalists you can be assured that they have interest and knowledge in your area.

Although it won’t be a quick and easy process, with the right amount of legwork, you’ll get the financing you need and a partnership that will help you and your startup grow.