Stages of Investment - Where Does Your Company Fit?

Most investment firms analyze and then label potential portfolio companies in terms of their current stage of business development.  Are there products and defined markets?  Does your business have customers and a clear-cut marketing plan?  What does it take to cut your next customer and do you have that plan in place?

The following terms are often used to describe these development stages:

Seed Capital - For ventures at the concept or some early stage of product development.  This is the riskiest time to invest in a company and the capital is priced accordingly.   Uses of Capital:  Generally, desired funding will be used to complete development of the product or service, acquire market information and develop a targeted customer base.

Start-Up Capital - At this stage, the venture has a developed product or service, has identified a target market and customer and is in the process of forming the business operation and entity.  Uses of Capital:  Usually, desired funding will be used to market the product or service and acquire customers.

First Stage Capital - These enterprises have utilized initial funding to acquire customers, develop internal systems, have production and service processes in place and are generating revenues.  Uses of Capital:  Typically, desired funding will be used to expand the present operation, as well as some incremental product or market development.

Second Stage Capital -  This latter-stage financing is for those companies with a defined product and market strategy in place, where the market is responsive to the company's product line and internal systems are similarly established.  The company's business plan should have a clear path toward cash-flow breakeven and operating profitability.  Uses of Capital: This is growth capital, plain and simple, with funding to be used for executing a successful business plan.

Other Latter-Stage Capital - This capital is intended for companies at or beyond cash-flow breakeven and operating profitability.  With defined products and markets, these companies will know what they need to do to get their next customer and develop or acquire their next product.  With demonstrable cash flow, latter-stage companies expand their capital access to almost any form of capital - from commercial credit to SBIC to public financing.  Uses of Capital:  Further business development and strategic acquisitions.