Venture Capital – What Kind Fits in Each Stage of Your Business?
For each stage of your business you can count on different types of venture capital to grow the enterprise. Their characteristics vary according to the need and the stage the company is in – recognizing each one is fundamental to the success of your business. Find out, below, some of the main types of risk capital available in the market.
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Venture capital in the initial stage
When there is only one entrepreneurial project, or when the company is still a start-up, there are two most common types of risk capital to use:
Seed capital or seed capital
Used by the vast majority of start-ups to put the idea on paper and put it into practice, the seed capital covers the initial expenses of the ventures, including expenses such as research and development.
In some cases the supplier of seed capital is the entrepreneur himself, but he can also go to third parties, which generates risks precisely because it is the initial phase in which there are no guarantees of success. Due to the high risk, the value invested in most cases is not very high.
It is an investor who applies own resources in exchange for shares or participation in a company. It is usually an entrepreneur with some experience in the business world or specific knowledge in the market of that venture with enough time in entrepreneurship to have surplus capital to invest, although this represents risks.
In addition to financial participation, it also contributes with tips and suggestions for the entrepreneur. This participation does not necessarily mean exercising control over the operational part of the company.
Venture capital in the development stage
When the company is in the second stage on the scale of growth, but still undergoes a process of maturation, it receives investments from the so-called entrepreneurial capital.
Known worldwide as venture capital, this entrepreneurial capital is an investment focused on companies with high growth potential. Generally, they are structured as Mutual Funds of Investments in Emerging Companies, the FMIEE.
It is a high risk investment and therefore requires high rates of return. This is also the reason for opting for agreements in which shareholders appoint administrators and veto certain acts.Venture capital funds normally operate in an environment of uncertainty.
Venture capital in the competitive phase
After going through the maturation stage, the company reaches the competitive level. In this phase, two types of risk capital are used.
Because they are companies with a more advanced level of competitiveness, they have less risk than venture capital (CV), but even so, they are risky investments. They demand higher rates of return than venture capital.
Subordinated financing (mezzanine)
It is divided into two types: mezzanine debt, which establishes subordinated debt, or mezzanine equity, with equity participation with priority over the other shareholders. You can also take help from an financial expert like Mark Attanasio and Donato Sferra who has helped many business owners in Toronto.