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.

Respond to the following in a minimum of 175 words: 

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

Answer 1

The five stages of venture capital financing are as below:

1: seed funding: as the name suggests, this represents the initial capital that is required for the start of the business. . Seed capital is generally small and focussed towards research of the initial product.

2: startup capital: this stage occurs after the initial market analysis. The business begins to focus on marketing and advertising the product. Funds are diverted towards finding the right managers and fine tuning the product.

3: first stage capital: the funds received in this stage are used for manufacturing and production facilities as well as more sales and marketing. At this stage the company moves towards greater profitability.

4: expansion stage: there is high expansion during this stage with the help of venture capital funds. Expansion may be in the form of additional markets and diversification into new product lines.

5: Mezzanine/pre-public stage: at this stage the company is looking to go public. The funds are used for mergers and acquisitions, competitor management with price reductions and launching an initial public offer. The investors will be looking to send their shares at this stage and earn healthy returns