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Venture Financing

 

 

 

 

 

 

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Venture Financing Stages (Phases of Venture Capital Funding)

Early-stage Financing
Early-stage financing is an initial infusion of capital provided to entrepreneurs with little more than a concept. These funds are used to conduct both market research and product development. Once research and development are underway, and the core management team is in place, start-up financing can be obtained to recruit a quality management team, to buy additional equipment, and to begin a marketing campaign.
Seed Capital Funds
Seed capital funds invest in the earliest stage companies, and generally expect to have only about 20% succeed to a second round of financing. This second round will usually be a hand-off to another fund, or syndication of funds, that now takes the lead on this investment. As a result, a Seed Capital Fund will almost always demand a very high percentage of the business, do stage investments with milestones, and insist upon proactive directors and officers of its choice. (Source: Venture Planning Associates)
Expansion Financing
First-stage financing enables a company to initiate a full-scale manufacturing and sales process to launch the product in the market.
Second-stage financing facilitates the expansion of companies that are already selling product and need to recruit more members to the sales, marketing, and engineering teams. Because many of these companies are not yet profitable, they often use the capital infusion to cover their negative cash flow.
Third-stage or mezzanine financing enables major expansion of the company, including plant expansion, additional marketing, and development of new product(s). At the time of this round, the company is usually at break-even or profitable.
IPO (Initial Public Offering)
The final step for a successful company is going public, referred to as Initial Public Offering, or IPO. Once a company goes public, the Venture Capital firm realizes a great deal of value from its initial investment.