VC ImageMany entrepreneurs have been there: they have an idea for a business they think could be wildly successful, but they don’t have the financial means to transform the idea into a functioning company. Not surprisingly, this is a frustrating situation—and has likely been the premature undoing of many potentially profitable startups in the U.S. Virgin Islands.

While obtaining a small business loan from a financial institution is one option for securing funds, the truth is that many banks are cautious about extending loans to startup businesses. This is why another option may have greater appeal: seeking and securing venture capital. This is a form of equity financing in which a firm puts up funding for a business venture in return for an ownership stake in the business.

For entrepreneurs starting out with little more than an idea and a plan, the opportunity presented by venture capital can be quite appealing.

What is it? And how can you get it?

Venture capital (and equity financing in general) holds a key advantage over traditional loan-based financing in that the money invested does not have to be paid back. Instead of receiving interest payments over a number of years, venture capitalists retain an ownership interest in the startups they fund, with the hope of reaping a share of the profits down the road. The other side of the coin, and another benefit for entrepreneurs, is that venture capitalists don’t just assume a share of the business’ success—they also assume a share of the risk. In other words, entrepreneurs don’t have to pay back the venture capital firm in the event that the business fails.

The process of obtaining venture capital is very similar to trying to get a startup loan from a financial institution. You have to make your case, and you do so by presenting a detailed proposal. It should indicate how much money you’re hoping to receive and a plan for how you will use it to benefit and grow your business. A strong proposal should also include a marketing plan and information about your existing finances, including other investors with a stake in your company. The venture capital firm will consider your proposal, likely conduct some additional research of its own and eventually make a decision.

If you manage to secure venture capital, there are still some legal processes you’ll need to complete, such as developing an equity finance agreement that details the investment and what control and benefits are being given to the investors. To ensure your protection and make this process easier, consult an experienced business attorney. A skilled lawyer will assist you during any stage of seeking and securing venture capital.

BoltNagi is a respected and well-established business and corporate law firm serving clients throughout the U.S. Virgin Islands.