The process of starting up a new business takes a lot of different kinds of support. From diligent research and sage advice to strategic business partnerships and outsourced services. One of the most important types of support for many new businesses will, of course, be of a financial nature.
This is what venture capitalists aim to provide businesses with. But not without the hopes of it becoming a reciprocal relationship. To learn what is venture capital funding, you’ll need to examine this relationship from both angles.
In an ideal world, there’ll be benefits of VC funding for both parties involved. To learn more about VC funding and how it works, read on.
What Is Venture Capital Funding?
So, what is venture capital funding? How does it differ from other small business loans offered by services such as Kiavi? In essence, venture capital is a form of financing that involves a group of investors (or one single investor) putting capital into a company in exchange for equity in that business.
The term is commonplace in Silicon Valley as VC funding is often focused on up and coming tech companies. However, this type of funding can be used with any type of small business or start-up. Outfits such as Uber, Impossible Meats, and Groupon are all examples of companies that have benefited from VC funding.
How Does VC Funding Work in Practice?
If you’ve got a small business or a great idea of your own, you might be wondering how VC funding is something you can secure for your company. The VC funding process is vigorous and can be lengthy. There are five main stages of VC funding.
- The Seed Stage
As the name alludes to, the seed stage is the very beginning of the process, during which the founder has an idea and shops it around to investors to help get it up and running. This could be to develop a prototype or conduct market research, for example. Seed venture capitalists can also participate in later investment rounds alongside other investors.
- The Startup Stage
Startups require an injection of cash at the beginning of their journey. This stage requires funding for things such as marketing and advertising. Then, the founder is in a position to demo their product to other investors.
- The First Stage
This is when the wheels are really set in motion. During the first stage, the company will begin the manufacturing process. Generally speaking, this stage requires more cash than in previous stages.
- The Expansion Stage
VC funding at the expansion stage is for companies that are looking to scale. This could involve moving into new markets, producing new products, or adding more employees. This stage is only for already established businesses.
- The Bridge Stage
The bridge stage happens when a company is ready to go public. Funds here will be to support things such as acquisitions, mergers, and IPOs. It’s also at this stage that many VCs will sell their shares with the hopes of making back the money they’ve invested plus a profit.
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