The process of venture capital investment usually includes several stages, each of which serves a specific purpose and offers different benefits to both startups and investors. Thus, the following stages are distinguished:Seed stage.
This is the earliest stage of venture capital investment, when startups are just starting to develop their product or service. At this stage, startups can get funding from angel investors, friends, acquaintances and family of the funder, and if they are lucky, from seed-stage-oriented venture capital funds. The purpose of the seed stage is to provide startups with the capital they need to validate their idea and develop a minimum viable product (MVP).Early stage.
The stage when a startup has already developed a minimum viable product (MVP) and is looking to expand. When the startup has proven to be viable, it has a wider range of willing investors. Early stage funding is needed to provide startups with the capital they need to launch their product or service into the marketplace, expand their customer base, and build a sustainable business model.Expansion stage.
Comes when a startup has established itself in the market and is looking to expand its operations and reach the next level. Often the initial investors at this stage seriously increase their financial support, actively attracting new investors through their channels. In addition, retail investors start to get involved in investing at this stage. At the expansion stage, it is necessary to provide the startup with capital to scale its operations and increase its presence in the market.Late stage.
At this stage, startups become established companies with a proven successful track record. As a rule, there are no problems with financing at the late stage due to the attraction of the widest range of investors, but there is a serious threat of over-inflating the company's value. At this stage of development, the venture capital exits.
This can happen in three ways:
- The company goes public - there is a stock market entry through an IPO;
- Takeover of the company by another company;
- Sale by over-the-counter transaction (rare).
Investing at each stage has its own disadvantages and advantages. Understanding the stages of venture capital investment, their goals and objectives, is crucial for both startups and investors, as it helps to make informed decisions about the type and amount of capital needed to achieve certain goals.