Venture capital investments are typically broken down into several stages. The initial stages are often referred to as the formative stages and the later stages are often referred to as the expansion, mezzanine and buy-out stages.
The formative stages often include a seed capital stage, a start-up financing stage and an early business stage.
The first of these, the seed capital stage, is primarily utilized for financing the exploration of new and potentially profitable business ideas. An initial seed investment from a VC firm usually ranges from around $200,000 to $1 million. The investments at this stage are typically for preliminary projects that still need to be completed in order to better assess the viability of a business idea. These projects may include things such as product development and market research.
The start-up financing stage and early business stage is for businesses that have already put a business plan together, have their products or services ready to exploit, and have completed an initial market evaluation. The investments at this stage are primarily to step-up a company’s marketing efforts and/or manufacturing and sales capabilities to commercially adequate levels.
Venture capital investments made beyond these formative stages are often referred to as later stage financing, expansion stage financing and mezzanine level financing.
Later stage financing provides investments for large scale production and manufacturing upgrades to commercially optimal levels, as well as infusions of necessary working capital to expand operations, product lines, and sales facilities.
Mezzanine level financing infuses the necessary capital and resources required to expand a company in anticipation of an initial public offering or for a strategic acquisition or buy-out (usually in the form of a management buy-out or a leveraged buyout).
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*While these articles aim to provide an accurate, objective and up-to-date portrayal and review of the law, the information contained in these articles is intended for informational purposes only and should not be construed as legal advice. No reader should act on the basis of the content without seeking appropriate legal counsel.*