Venture capital is money provided by an outside investor to finance a new, growing, or troubled business. The venture capitalist provides the funding knowing that there’s a significant risk associated with the company’s future profits and cash flow. Capital is invested in exchange for an equity stake in the business rather than given as a loan, and the investor hopes the investment will yield a better-than-average return.

Venture capital is an important source of funding for start-up and other companies that have a limited operating history and don’t have access to capital markets. A venture capital firm (VC) typically looks for new and small businesses with a perceived long-term growth potential that will result in a large payout for investors.

Venture capitalists look for businesses that have the potential to grow quickly to a significant size, yielding a significant return on the VC’s investment in a relatively short period of time. VCs are not just interested in start-ups. Your company’s current size is less important than its future aspirations and growth potential. A target company for a VC is one that may be capable of becoming a large market leader in its industry due to some new industry opportunity and competitive advantage. There’s no single determinant for a successful portfolio company, but a VC tends to focus on the following factors:

The first professional investor to a deal at the start-up stage is referred to as the Series A investor. This investment is followed by middle and later stage funding – the Series B, C, and D rounds. The final rounds include mezzanine, late stage and pre-IPO funding. A VC may specialize in provide just one of these series of funding, or may offer funding for all stages of the business life cycle.

There are some excellent alternatives to venture capital that you should also explore in your search for funding sources. One such alternative is an angel investor – a term for an investor that takes you under its wing and lifts you up to the next level of growth. Angel investors typically do not have deep pockets so the average investment tends to be smaller than that of a VC, typically hundreds of thousands of dollars rather than millions. For that amount of capital, proceed with caution if you’re considering giving up some control over your company.

The business plan is a detailed road map to your venture and how you plan to grow it into a successful business. It’s a crucial document for anyone seeking capital, and is typically developed with two audiences in mind: 1) angel investors – wealthy individuals who personally invest their money, expertise and experience in your venture; or 2) venture capitalists (VCs) – partnerships with funds of pooled investment capital with which to invest in a number of companies.

The executive summary is by far the most important section of your business plan because it’s the first thing the busy VC or prospective investor will look for and read to get an idea of your investment opportunity. If your executive summary is compelling enough, the VC will read further, contact you for more information, and/or ask you to come in for a meeting to present your ideas. If your executive summary fails to strike a chord of interest, the reader will quickly move on to the next business plan in the stack.

The executive summary – really just a compact version of your business plan – should concisely address the following: