Development Stages In Seeking Venture Capital

The amount of equity and return on investment venture capitalists expect depends a great deal on your company’s stage of development. The more mature and stable your business, the less risk the venture capitalists take when they invest. In general, venture capitalists recognize five stages of development:

1. Seed Funds
2. First round or “start-up”
3. Second round
4. Third round or expansion financing
5. Fourth round or growth stage

Seed Funds : Sometimes venture capitalists come across promising ideas that require a small investment to develop a prototype, business plan, or mar­ket study. At this stage, the entrepreneur frequently has not even formed a company or hired a management team. In today’s fast-paced, high-tech markets, venture capitalists search for great ideas sooner, and the entrepreneur who has a successful history with other start-ups can receive a significant amount of capital. Venture capitalists perceive seed financing as the riskiest type of investment. Very few new ideas have the potential to make money, and as a result, the venture capitalist will require a signifi­cant equity stake in the company and will expect a return on investment of up to 80 percent. (more…)

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