Types of Venture Capital Funding – Which One is Right for You?

First, a short definition of venture capital is needed. Venture Capital is money invested by a funding partner to a new, growing or troubled business. The decision to invest is taken knowing the risks involved, but also the potential future profits.

There are several types of venture capital, classified based on the stage of the business seeking for investment. The three main types of working capital are early-stage funding, growth funding, and acquisition/buyout funding.

After six stages of financing being completed, one can consider the venture capital funding procedure is completed.

These stages are:

1.Seed Money

If you do not have a product or a company yet, but you are just starting out, then you are looking for low-level financing. Investment capital at this stage may be used for market reasearch, fructifying an idea, making a sample product. Few VC funds decide to invest seed money and usually it is not a large amount.

•Start-up

Companies that have developed products or services can get start-up financing. They can use the money to finish product development and meet marketing expenses.

•First-Round

Usually granted to companies after 2 or 3 years of existence, this type of financing is used to increase sales, improve productivity, take their activities to full business scale.

•Second-Round

If you have sales, but no profits or have just break even, this is the stage your company is in. So what you will get is this operational capital.

•Third-Round

Also known as mezzanine capital, this type of investment will help expand into new markets or increase your marketing activity.

•Fourth-Round

Alson termed ”bridge financing”, the money is used for ”going public”. You have to know there are venture capital funds that focus their efforts on the end of business spectrum – mezzanine and bridge financing. They specialize in initial public offerings (IPOs), buyouts or recapitalizations.

While Early Stage Financing comprises seed money, start-up and first round financing, Expansion Financing is subdivided into second stage financing, third stage funding and bridge financing. Acquisition or Buyout financing sustains a company to acquire certain parts, products or an entire company.