Accessing capital through venture capital funding has become almost an art form. There are small players that finance up to $500,000 and larger players that finance up to $25,000,000 or more. There are industry specific firms and there are firms that focus on a specific region, country or continent.
Although you want to contact as many potential investors as possible, it is good practice to do your research and preparation first, then contact numerous potential investors. No sense sending your business plan or executive summary to firms that only fund $5,000,000 or more if you are only looking to raise $1,000,000. Likewise, it doesn't make sense to send an executive summary and then spend hours or valuable time making follow-up calls to venture capital firms that only fund technology or biotech companies if your company is in the retail business.
Over the years, the terms "venture capital" and "private equity" have become blurred and intertwined. My suspicion is that venture capitalists got tagged with the nickname "vulture capitalists" and decided to start using the less offensive name, "private equity investor". After all, who would you rather get funded by a vulture capital firm or a private equity firm.
I think an easier distinction, however, is that venture capital more often relates to funding provided to start-up companies or very young companies, whereas private equity refers more to funding provided to more established companies or companies in a growth stage or seeking mergers and acquisitions.
Venture capital funding, when applied to these start-up or young companies is therefore very costly since the company likely has very little revenue if any and probably needs the financing to survive. If that is the situation, of course the investor is going to dictate some very demanding terms and require a large piece of equity in your company because of the high risks involved. Looking at the situation from another point of view, if your company is in no position to bargain and survival depends on that financing, then you would be foolish not to take the financing. Management should try to avoid the situation by raising capital well in advance of when it will be needed. Keep in mind that when it comes to raising funding for a company it usually take much longer to raise than anticipated.
There are some things you can do to allow your management team to recapture some of its equity, such as a claw back. This allows you to buy back a small portion of the equity they investor purchased if management is able to hit certain milestones in terms of gross or net revenues.
