Stages of Venture Capital Funding

Venture Capital Funding is a form of private equity wherein the investor has a minority interest in the business. Typically it extends over a few years from ideation to exit.

Let us take a case study of Simply Switch, an online price comparison tool, where a user can switch to the best bargain for electricity, gas, credit card, broadband, etc. In 2002, after assessing Simply Switch’s growth potential, a venture capital firm called Bridges Ventures injected £125,000 pounds at the time when the company had just started. Over a period of three and a half years it totally spent 345,000 pounds. It sold its stake in 2006 for 22 million pounds returning £7.5 million pounds, resulting in an IRR of 165%. Bridges Venture chaired the company initially before placing an industry expert as chair. It undertook new market entry and growth strategies. The venture capitalist provided strategic and financial advice and ascertained the optimum time for exit. (Source: bvca.co.uk).

Clearly there are different stages to venture capital funding of a business. Schilit review offers an understanding into the various stages of venture capital investing. Funding varies from stage to stage. Given below is a table of the stages.

Early stage funding can be either start-up or first stage funding. In start-up financing capital is provided for initial operations and testing. This would include product development and initial marketing. First stage funding is provided for initial commercial production and sales.