Question

1.Why would Venture Capital use the stage financing ?

2. How the stage financing actually works?

Thank you !!

Answer 1

1)

venture capital financing is risk-equity investing through funds that are professionally managed and provide seed, early-stage and later-stage funding to accelerated growth companies. Venture capital funds provide an important link between finance and innovation and are intended to propel a product's success or growth in the marketplace. The main benefit to venture capitalists is multiple returns on their initial investment.

in startup companies, with the hope that they will earn significant returns when the companies become a success. They are wealthy enough to take losses that may be incurred by investing in unproven, high-risk companies. When choosing companies to invest in, they consider the company’s growth potential, the strength of its management team, and the uniqueness of its products or services.

stages of financing

The Seed Stage

Venture capital financing starts with the seed-stage when the company is often little more than an idea for a product or service that has the potential to develop into a successful business down the road. Entrepreneurs spend most of this stage convincing investors that their ideas represent a viable investment opportunity.

Start-Up:

In this stage businessman contact potential investors with a solid plan for getting finance so that some advertising and marketing work can be done to attract potential customers. Although no sale of goods & services is made in this stage but some more market reaserach can be done with the help of finance.

The First Stage

first stage financing typically coincides with the company’s market launch, when the company is finally about to start seeing a profit. Funds from this phase of a venture capital financing typically go to actual product manufacturing and sales, as well as increased marketing

The Expansion Stage

Also commonly referred to as the second or third stages, the expansion stage is when the company is seeing exponential growth and needs additional funding to keep up with the demands

Fourth-Round Financing:

This is known as final and last stage and after reaching to this stage a company get full fledged status so company will focus on mergers, acquisitions and IPOs, so that problem of tough competition can be faced efficiently.