| There are many stages in venture capital financing. | | | | initial expansion of a company that is shipping |
| Defining the current stage of your project is | | | | products but may not yet be showing a profit. |
| important so you don't waste your time or the time | | | | Third Stage--This is also called "Mezzanine" financing. |
| of potential venture capitalists.Early Stage Financing: | | | | Capital at this stage is used for major expansion |
| Seed Financing--A small amount of money is involved | | | | including physical plant expansion, marketing, and |
| (usually $50,000 or less). Funds are used to develop a | | | | working capital. |
| concept. This is the earliest stage of venture capital | | | | Fourth Stage--This is also referred to as "bridge" |
| financing. The investor (often referred to as an | | | | financing. This is financing for a company expecting to |
| angel) is expecting to reap a large percentage | | | | go public within six months to a year. Often bridge |
| ownership should the concept prove to be feasible | | | | financing is structured so that it can be repaid from |
| and marketable. | | | | the proceeds of a public underwriting. |
| R&D Financing--This is a tax-advantaged | | | | Acquisition/Buyout Financing: |
| partnership set up to finance product development. | | | | Acquisition Financing--Funds are provided to a firm to |
| Investors secure tax write-offs for their investments. | | | | finance its acquisition of another company. |
| If the product becomes successful, they share in the | | | | Management LBO--Funds are provided to enable an |
| profits. | | | | operating management group to acquire a product |
| Startup--Money is used for product development and | | | | line from either a public or private company concern, |
| initial marketing. While startup companies are | | | | often the very company they work for. (LBO means |
| organized, they typically have not yet sold their | | | | leveraged buy-out.) |
| products commercially. | | | | Public Market--This is the purchase of |
| First Stage--The entrepreneur usually has developed | | | | over-the-counter stock. The venture capital investor |
| a prototype. Funds are used to initiate full-scale | | | | is typically directly involved with improving the |
| manufacturing and sales. | | | | company. |
| Expansion Stage Financing: | | | | (c) Copyright 2006, Leonard M. Stillman Jr., All Rights |
| Second Stage--In this stage, working capital is for the | | | | Reserved. |