Venture Capital Funding The Different Stages of Investment

1. Venture Capital Funding: The Different Stages of Investment Most of us have a very basic understanding of heavy financial functions in place, from hedge funds to venture capital. We may know what they essentially are, but we do lack an understanding of the intricate processes than run behind. Most of us would have heard the term venture capital when the discussion on funding for start-ups begin. This funding pool consists of cash invested by different people, which is then used to fund emerging companies or start-ups. Since start-ups or companies that have not yet hit the market are involved, the risk in such investments are definitely always going to be high. However, it could be completely worth it given that the investor backs the funding by proper research and understanding that assures them long-term growth. Since the risk involved in high, this kind of investment also has the potential to bring back higher returns and generate maximum profit. However, since the kind of companies vary, so do the stages at which this fund is invested. Typically, there are five stages of venture capital financing–the seed stage, start-up stage, first stage, expansion stage, and bridge stage. The seed stage can be understood as the initial stage of starting a new business. This is the stage at which the company has a fair idea of their offering in terms of the service or product they plan to provide. This is when the funding invested is generally small, and is used for business development, expanding marketing research, and product development. The next stage is called the startup stage; this is when the research and development has been completed, a business plan is set to be rolled, and marketing plans are ready, and a prototype of the product is ready. The funding at this stage is usually used to enhance their products and polish it further or expand their team. The next stage is called the first stage or even the emerging stage. Usually, funding at this stage comes with more clarity, as the company has partially launched their product in the market. However, for an official launch, the company would require more capital for increased marketing and production. Therefore, the funding at this stage is comparatively much higher than the amount in the first two stages. The next www.avendus.com

2. stage is called the expansion stage; in this stage, the company seeks out funding to bolster their production so as to be able to meet the demands. Funding during these two stages are more calculated and comparatively less risky because the business or the company is already existing in the market, and is commercially viable. Therefore, the investor enters the financial partnership with a proper understanding of the company’s potential. The final stage involved in venture capital funding is called the bridge stage. This is the stage where the company has matured, and is transitioning towards a full-fledged and established business. Therefore, when a funding is acquired at this stage, it is usually to support mergers and acquisitions or IPOs. This stage is transitional in the sense that early investors often end their financial relationship in order to receive a return on their investment. A fund management organization or the best finance companies in India can help guide you through the various stages of venture capital funding and secure maximum profit on your investments. www.avendus.com