The stage of your company development affects the type of investor that is appropriate for your business

The type and source of investor funding available for your business depends on your company’s stage of development. Investors often take a specialized approach, focusing on one key phase of the lifecycle of a growing company. Some venture capital investors (VC investors) 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).

The company financing life cycle. As risk lowers over time, funding from investment and sales (venture capital and public markets) increases, replacing the grants, angels and seed funds that provided earlier funding.

Source: The Company Financing Lifecycle – Primaxis Technology Ventures

Venture capital investors

Most venture capital investors (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:

  1. Concept stage
  2. Startup phase
  3. Growth or expansion stage
  4. 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 company’s stage of development, identify appropriate investors to approach for funding.

References

Canada’s Venture Capital & Private Equity Association. Retrieved April 19, 2009, from www.cvca.ca.
National Venture Capital Association. Retrieved April 19, 2009, from www.nvca.org/def.html.
National Angel Organization. Retrieved April 19, 2009, from www.angelinvestor.ca.