Monday, November 18, 2019
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5 primary Equity investing Finance Stages

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The source of finance is mainly linked to the phase of capital raising when looking for equity investment.

There are 5 main stages of equity financing, these stages include:

  1. Pre-Seed Funding
  2. Seed Funding
  3. Early Stage Investment (Series A & B)
  4. Later Stage Investment (Series C, D, and so on)
  5. Mezzanine Financing

Several businesses investing investment money or subsequently buying it or going public were primarily funded in multiple rounds. Will you go big before you sell or get traded publicly?

There is no correct or incorrect answer, but if that is your view, it is important to consider the negotiations on early funding rounds while negotiating.

Like a wise man once suggested, “start the end in mind” and you won’t deal with your angel and/or early investors to make future funding more complicated.

If you don’t expect to invest, you would likely end up gaining enough support in stage two to maximize your promotion, revenue and services to organically expand from there to the point where you are satisfied and ready to sell.

Stage 1: Pre-Seed Funding

Pre-seed funding applies to a company’s initial money, which comes from employers, family members, credit cards, whatever you can. This could be as high as 5,000 dollars or up to 100,000 dollars.

Even if the sums are smaller, administrative finance (in the case of an organization rather than an individual person, the “institutional financing” is difficult to obtain). Banks are not prepared to lend a small enterprise to a business that needs to start, fail and develop a track record.

Nonetheless, that is when you get the seed money to start the company with the necessities necessary to start producing your first profits and accomplish them.

You can’t do your first inventory without a requisite equipment, an initial website or your first shipment. Put everything else on your “budget” to purchase with sales or additional financing revenue.

With this capital, the organization also finishes its business plan and starts developing a management team to prepare itself for the next investment phase.

After some time spent reviewing the original business model, most companies end up taking their organization in a new direction.

Take Wrigley’s owner who started selling bread and soap dust door to door and offered gum as a reward until people were discovered to have loved it much more than soap.

So you are going to test what works and what isn’t during this process. There, you are planning to increase the scale of potential funding.

At this stage in your company, it could be nice not to have too much cash, because you won’t invest too far in the direction you are going to give up later.

 

Stage 2:  Seed Funding

Seed funds (also known as seed capital) typically range $100k to $500k and are funded often by members of the Angel community.

You are hoping to grow your business and at least receive concept evidence with seed funding.

It suggests that you will use the funding to create a product or service to prove that consumers want to buy it. You are now ready to offer institutional investors who can finance your business to scale or quickly grow.

Stage 3: Early Stage Investment (Series A & B)

The phrase “Series A” relates to the first round of external investment for a product.

The median round of Series A varies from $2 million to $5 million with the primary intention to support projects at an early stage.

Provided enough funding for 1 to 2 years of operation, the funds raised from the Series A round can be used for the full range of requirements–from brand development and marketing to workers ‘ wages.

The B phase is the early funding stage after series A.

You may tend to increase 5 million dollars to 10 million dollars in this round, but you may often collect up to 20 million dollars in capital or more.

Stage 4: Later Stage Investment (Series C, D, etc.)

More stages for venture capital investments were series C, D, etc. (some investment-backed firms received more than 10 rounds in finance).

Each round could collect between five and twenty million dollars or more. Rounds in series C, D, etc. are usually only collected from risk capital firms and/or political / corporate shareholders.

Stage 5: Mezzanine Financing

Mezzanine financing, often provided by private equity funds, is a fund which is provided either as interest, bond or convertible notes which are provided to a business shortly before its initial public service bid.

Investors of Mezzanine are typically less aggressive, as the business is generally strong and able to cash out relatively quickly.

It, ideally, points out how and when you obtain the various types of support. If the moment is not correct or if it is not necessary to reach the dream, it does not make any sense to go after risk capital.

The main objective for most of my readers is to ready the business for angel funding until the time has come for risk capital.

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