There is a term, called venture capital funding, that is often thrown about when discussing startups that are just getting started. It is a type of funding, yet most people do not know how venture capital actually works.
It is a form of funding that allows investors to put their cash together, in a single fund, helping startups get the money that they need for potential long-term growth. They are also called venture capital investments, and in most cases, they are high reward and high risk investments.
Every company is going to be slightly different, and there are stages through which the funding will be distributed. In general, there are five stages when talking about venture capital financing.
The Seed Stage
Venture capital tends to begin the financing journey with what is called a seed stage which is the amount of money that the company will need in order to get started. The entrepreneur is going to spend almost all of this simply trying to convince other people that this is a good investment opportunity. The amount of funding is going to be relatively small, and is primarily focused on business expansion, product development, and marketing research that will be needed to create a prototype of a company that will attract interest.
The Startup Stage
The next stage is called the startup stage, and this is where a business plan has been developed, and the research has been completed, so that marketing and advertising can begin to attract potential customers. This prototype is what is shown to more investors, but they typically don’t have a lot of sales. It is at this stage of the business that larger infusions of cash will be needed in order to produce services and products, conduct research that still needs to be done, and expand their personnel prior to an official launch of the business.
The First Stage
The emerging stage is the first stage, coinciding with when the company is about to do a market launch and is actually starting to see a profit. It is at this point that funds from a venture capitalist, or multiple people, can help in the increase in marketing, as well as the production of products for that business. In order to launch a business like this, large amounts of capital are needed, so the funding at this point will be quite high.
The Expansion Stage
This is broken down into secondary and tertiary stages, during which exponential growth will be seen and additional funding will be needed. This business is a commercially viable product at this point and is likely seeing profits, which will draw out additional venture capital funding options that will lead to more product diversification and the expansion of the business.
The Bridge Stage
This is the final stage in which the company is beginning to mature. There are mergers that are occurring, IPOs, and also acquisitions. It is at this stage that the company will begin to transition into a full-fledged business that is completely viable. Many investors will often sell the shares of the company that they currently own, and leave the company completely, receiving a return on their investments.
An experienced business attorney is usually needed to go through all of these different stages, providing much-needed advice to improve a company’s ability to properly grow and utilize venture capital funding.
