As netamorphosis is a startup at heart, we are very familiar with terms such as ‘VC funding’, up to the point that venture capital funding is actually one of the core elements within our Capital Raising offering.
In the startup and finance world, VC funding defines the act of supporting the cash-flow of investment funds derived from what are normally referred to as ‘venture capitalists’, or VCs. These are a very specific type of investor, seeking private equity stakes in startup and small-to medium-sized enterprises with perceived long-term and strong growth potential.
The typical venture capital investment occurs after the seed funding round. This first round of financial planning of institutional capital is to fund growth in the interest of generating a return through an eventual realization event, such as an IPO or trade sale of the company. Venture capital is a specific type of private equity. Such types of investments generally have high-risk/high-return types of opportunities attached and represent an important source of funding, especially for emerging businesses as these might not yet have access to capital markets.
THE 4 KEY STAGES OF VENTURE CAPITAL FUNDING
- SEED: The seed stage is the first stage of any venture capital financing, normally directed to support product development, market research, staffing, and business plan development. The seed phase is often tied to modest amounts of capital, as it aims at financing and often times boot strapping a concept to market, in the early development of a new product or service. However, VCs who participate in this stage are likely to support later investment rounds as well.
- EARLY STAGE: The early stage supports capabilities set-up, and targets companies that are already operational but not ready for market yet. This phase comprises a startup and a first stage sub-phase. During the startup phase, the focus is on product development and initial marketing activities, targeting new or emerging companies that have not brought their products to market yet, but already have a business plan, a managerial team and a market assessment ready. During this phase, the enterprise would begin welcoming “outside” investors as well. Concurrently in first stage, capital seeding is aimed at supporting commercial manufacturing and sales, mostly of pilot and test products.
- FORMATIVE STAGE: This phase includes the seed stage and the early stage.
- LATER STAGE: This phase applies to businesses that are normally over 3 years old. During the later stage, the company is at a point in where there have not been any public offering as yet, but manufacturing and sales have already occurred, so the product or service is commercially available. At this stage, there might be revenue growth projected but the company may or may not be showing a profit yet. VC funding during the later stage normally includes: (1) support for product or physical location expansions such as physical location expansion, product improvement and marketing; and (2) support to go public (bridge).
Every year there are nearly 2 million businesses created in the USA, and 600 – 800 (.0003%) get venture capital funding. According to the National Venture Capital Association, 11% of private sector jobs come from venture-backed companies and venture backed revenue accounts for 21% of US GDP.
The good news is that, if in the past, venture capital investments were only accessible to venture capitalist firms or professionals, but presently accredited investors have a greater ability to take part in venture capital investments as well.
In fact, over the past 7 years, through our Capital Rising service, n e t a has helped more than eight entrepreneurs and companies raise in aggregate approx. $70 million in seed to private equity (PE) financing. At n e t a we have also supported top VC firms see what others don’t, by a combination of vetting and introducing them to early stage businesses and providing them with the opportunity to be first in line as potential new investors.
The result? A win-win situation for all.