Stages of company development and investor types

Source: The Company Financing Lifecycle Primaxis Technology Ventures

The type and source of funding available for your business depends on your companys stage of development. Investors often take a specialized approach, focusing on one key phase of the lifecycle of a growing company. Some venture capital (VC) firms use a diversified approach, providing initial investment to companies at different stages in the financing lifecycle (for example, they may invest 25% in start-ups, 50% in growth-stage companies and 25% in later-stage companies). Most VC investors will continue to provide funding in later rounds for their portfolio companies that achieve business milestones, while angel investors may choose not to fund beyond the early stages. VC investors seek to end their funding in three to seven years as per their investment strategy. Keep in mind that an early-stage investment may take seven to ten years to mature, while a later-stage investment many only take a few years. Therefore, investors will target companies that can create returns to match their target timeline. A business has four basic stages of development: Concept stage Start-up phase Growth or expansion stage Later stage At each stage of development, a company has different available resources, as well as varying needs, investor expectations and levels of risk. As part of a financing strategy or roadmap, entrepreneurs should

develop a set of technology and business milestones, determine the size of target investment rounds, and, based on their companys stage of development, identify appropriate investors to approach for funding. Concept stage of company development STAGE 1: Concept stage At this stage, you have an idea and are exploring the feasibility of building a technology product or service based on that idea. Youre working to determine how you will build the product or deliver the service, and to identify the target customers, partners, distributors and competitors in your market. Funding sources: In Ontario, development costs for technology concepts may be funded through grants and other programs. Market research, product design, and other early-development costs are usually funded by the entrepreneur or their family and friends. Risks: The risk at this point of a venture is generally considered high. While investment capital requirements are relatively modest (<$250,000), the business usually has no revenue. Expectations: The funding received in the concept stage will be used to: develop a technology proof of concept establish the business model generate the financial plan build the pitch presentation generally launch the venture Startup phase of company development STAGE 2: Startup phase Here, youve proved that your idea is feasible and that you have a credible business model to deliver the product or service to an attractive target market. For the most part, the business has no or minimal revenue at this stage; however, prospective customers and/or distribution partners have indicated their willingness to test the product and purchase it if it works as intended when ready for commercial shipment. Funding sources: Angel investors are generally most interested in companies at this stage, and will invest on their own or in a syndicate (i.e., a group of investors). Angel-only investment rounds usually provide $250K to $1 million in financing.

Not all venture capital (VC) groups invest in start-ups. A VC who is willing to invest before a real product or company is organized is called a seed investor. In a syndicate, seed funds will co-invest with angel investors. Seed rounds usually provide $500,000K to $2 million in financing. Risks: At this point, youve lowered the ventures risk by achieving concept -stage milestones and you have identified your specific financing needs ($500,000K to $2 million) for the next stage. Expectations: The funding received in the start-up phase will be used to: develop a viable product from the technology build products or services for early-customer prospects to test develop a marketing and sales plan for the product launch enable the company to achieve revenues of approximately $1 million (a key milestone for the next phase of fundraising) Growth or expansion stage of company development STAGE 3: Growth or expansion stage By this point, youre on your way to building a successful business. You have largely assembled your team and the business has initial revenues of at least $1 million from the sales of your product or service. Note that some investors may require the business to achieve higher amounts of revenue before considering investment. Funding sources: Venture capital investors (VCs) target high-growth businesses and therefore are attracted to this phase of company development. VCs look for businesses that can scale to $25 million to $100 million in revenue within three to five years. Angel investors may also provide growth capital for medium-growth businesses with $5 million to $25 million in revenue; they require more modest levels of total capital (e.g., $2 million to $5 million) over the life of the business. Risks: Here, the risk is significantly lower than in the early stages due to your demonstrated business traction, but in order to scale and grow your business to reach a critical mass, you need additional capital ($2 million to $10 million). Expectations: Growth-stage capital is often invested through a process of financing rounds, called the Series A, Series B and Series C rounds, named for the class of preferred shares issued to investors each time.

Series A rounds may be the seed investment round, or the round immediately thereafter. Series A funds are used to achieve the important milestone of shipping commercial products to customers. Series B rounds are often used to scale the business from a marketing, sales, distribution, and operations perspective, and to take a business from its first $1 million of revenue to a scaled result of greater than $10 million of sales, thus approaching the cash-flow break-even point in the business. VCs and other investors hope that for most businesses, the Series C round will be the final round of funding that enables the business to achieve a significant scale in revenues of $25 million to $1 billion and to generate a positive cash flow from its operation, thus drawing interest for business partnerships (critical for further growth and attracting exit opportunities). Later stages of company development STAGE 4: Later stages Some VCs or other investors focus on later-stage investingproviding the financing to grow beyond critical mass and to attract public financing through a stock offering. Funding sources: Some venture funds specialize in acquisition, turn-around or recapitalization of public and private companies that they deem to represent favourable investment opportunities. Alternatively, a later-stage VC firm may invest to help companies acquire another company as a way to achieve scale, or to provide liquidity and an exit for the companys founders and early investors. Risks: At this stage, the operational risk of the business has been lowered through the scaling of revenue, and through partner relationships with customers and distributors. However, risks remain with respect to competitors, the sale of products and services, and the market in which you might take your business public. Expectations: In addition to governance and other regulations, each public stock market (e.g., TSX, NASDAQ) has minimum financial listing requirements for private companies seeking their first public stock offering Investment bankers and underwriters who assist with public offerings develop a set of financial criteria for companies they are willing to work with, and these criteria change depending on the health of the public market. The criteria are similar to those from the stock markets, but may vary with the type of business and include a minimum target valuation (market cap) for your company, minimum thresholds for assets and revenues, and a minimum number of quarters or years that the business has been profitable.

1. De qu mercado o industria trata el documental 2. Cules son las dos empresas que compiten en dicho mercado y cul es la lder y cul la incumbente o entrante 3. En qu ao aparece la idea de la empresa incumbente y en qu ao empieza a funcionar (startup) 4. Con qu tipo de financiamiento inicia la empresa incumbente, quin la financia y una vez puesta en marcha, de dnde proviene su posterior financiamiento. 5. A diferencia de la empresa incumbente, de dnde provenan los recursos de la empresa lder y cuantitativamente que relacin guardaban con el tipo de financiamiento de la incumbente. 6. Menciona las principales barreras de entrada y armas estratgicas que utliz la empresa lder contra la incumbente 7. Explica el esquema de financiamiento y generacin de beneficios de la empresa incumbente. 8. De que tamao fueron los beneficios obtenidos del principal socio de la empresa incumbente. 9. Estos beneficios tuvieron su fundamento real en la generacin de ingresos y ganancias de la empres?. Explica. 10. Una vez que concluye la lucha por el mercado entre la empresa lder y la incumbente, a qu litigio judicial se enfrenta y cul es la sancin o riesgo que se le aplicara a la lder por parte del poder judicial si prosegua con sus prcticas anticompetitivas. 11. Identifica las principales situaciones de informacin asimtrica principal-agente y seleccin adversa que se presentan en el documental. 12. Sintetiza, la evolucin de la empresa incumbente y de la lder entre sus ingresos o ventas, riesgo y financiamiento. En qu se asemeja o difiere del esquema sobre el ciclo de vida de financiamiento de una empresa. 13. La rivalidad entre la lder y la incumbente a qu tipo de industria y mercado dio origen, y eso cmo se reflejo en el tipo de financiamiento de las empresas de dicha industria o mercado.