Question

Venture capital financing is a type of funding which assembles cash from investors and lends it to startup businesses that have high potential for success. Venture capital investments usually encompass very high risk; however, the reward has the potential to exceed the risk. The process for acquiring venture capital financing sometimes is complicated, but generally there are five stages in the process of procuring venture capital financing.

• Discuss the five main stages in the process of venture capital financing.

Answer 1

Sl. No.	Stages	Characteristics
1.	Seed stage	Ideation stage Just an idea or concept that has potential Proof of idea or concepts not tested yet No prototype, no pilot, no marketing, no research & development, no sales so far Funds required for prototype, pilot, concept testing or marketing
2.	Start up stage	Potential of the idea has been tested Some research and development has now been done Prototype is available No sales so far Funds required for further research & development, team building,
3.	First stage	Marketable offering in place products and services in place Team in place Pilot tested and successful All readiness for launch of manufacturing and sales Lack of profitability Funds required for manufacturing, increased marketing,
4.	Expansion stage	Commercially viable Massive expansion planned (launch of new products, launch across new geographies, capital investment) Break even establishes, signs of profitability may / may not be there. Funds required for large scale expansion
5.	Bridge stage	Company showing signs of maturity and stable profitability Looking for further growth through mergers, acquisitions Plan to hit the capital markets Wants to provide exit to some of the early investors