Major Stages of Venture Capital Funding

Venture capital (VC) is meant to provide funds for up-and-coming businesses. This capital commonly comes from experienced investors and investment banks. Earlier, Anand Jayapalan had mentioned that venture capitalists generally invest in companies that are just starting out, before they go public. Apart from monetary assistance, VCs can also provide startup founders with management advice, support, and networking.

Venture capitalists tend to invest in companies in stages. They usually provide smaller sums to get the business up and running, and invest more money once the company starts selling its product or service. Here are the five major stages of venture capital investments:

• Seed Stage: This funding is used for building the foundation of a business. It provides the financing necessary for supporting market research, product development, and building out the team. At the seed stage, the startup founder may just have a prototype or an idea for their business.

• Startup Stage: After the market research is done, a leadership team is established and a sample product has been developed, investors shall provide more funding if they believe that there is a market for the product. Venture capital is used by startups at this stage to continue developing what the startup worked on in the seed stage. They put emphasis on hiring more people, developing the product further, as well as continuing with market research.

• Early Stage: Also known as first or second-stage capital, early-stage funding generally comes after the startup has begun selling its product. The investors can see the viability of the product at this stage and gauge how it fares in the market. Capital from early-stage funding commonly goes towards developing the sales, product manufacturing, and marketing processes of a company. Hence, funding at this stage is generally much higher in comparison to the previous stages.

• Expansion Stage: As a startup experiences a certain level of growth and profit, venture capitalists may invest more funds to make sure that it can keep up with the growing demand for the product. This funding is subsequently used by startups to grow their market share, potentially expanding their products into new markets or areas.

• Bridge Stage: Also referred to as the mezzanine stage, the bridge stage is the last stage of venture capital financing and aims to get the startup to go from private to public. Going public means outside investors would be able to purchase company shares. At this stage, venture capitalists make profits by selling off their shares.

Earlier, Anand Jayapalan had spoken about how all successful startups need way more than a great idea. It requires a regular stream of funding that is provided by investors who believe in the startup. Today venture capital has become an important component of the fundraising ecosystem. VCs typically reinvest at every startup stage. They focus on facilitating rapid growth, which can be very difficult without a significant capital infusion. A lot of VC firms are also actively involved in running the companies in their portfolios. They help startups build strategies and connect with potential partners.​