Venture capital generally mainly invests in the establishment stage, growth stage and expansion stage, so how many stages does a startup have? What are the characteristics?
Entrepreneurial enterprises generally have two common characteristics:
First, they can't enter the loan market.
To raise funds in the market and the open securities market, we can only turn to the venture capital market;
Secondly, their development has stages, which can usually be divided into five stages, namely: seed stage, creation stage (initial stage), growth stage (development stage), expansion stage and maturity stage. Entrepreneurial enterprises are in different stages of development, and there are obvious differences in enterprise scale, capital demand, investment risk, market development and company growth at each stage.
1. Seed stage
This stage is basically in R&; D stage of technology and product development, namely, test and development (R&; D) In the middle and late stage, the laboratory results, samples and patents are all produced, not products. The enterprise may just be established or in preparation, and there is basically no management team. At this stage, the investment success rate is the lowest (less than 10% on average), but the single capital demand is the least, and the profit is the highest after success. The investment forms at this stage are mainly government special funds, scientific research funds of scientific research institutions and universities, social donations and equity funds provided by individual venture capitalists called fairy investors. Because the investment risk is too high, standardized venture capital institutions basically do not set foot in this stage.
2. Startup period
At this stage, the enterprise already has the primary products, a very rough business plan and an incomplete management team. No income, very low expenditure. According to statistics, the creative stage is generally about one year. At the end of this stage, the enterprise has a business plan and a management team has been established.
This stage is roughly equivalent to the early stage of the pilot stage in China. Compared with the seed stage, the technical risk is greatly reduced, but the investment success rate is still low (less than 20% on average). Although the single capital requirement is much higher than the seed stage, the profit after success is still very high. At this stage, due to legal restrictions, those non-profit investments will no longer be suitable, so venture capital will be its main investment form. Generally speaking, venture capital really participates in the development of venture enterprises from this stage.
3. Growth period (development/test version)
This stage is roughly equivalent to the late pilot and early pilot in China. Technical risks have been greatly reduced, products or services have entered the development stage, limited customers have tried them out, and the cost is increasing, but there is still no sales revenue. At the end of this stage, the enterprise has completed the product finalization and started to implement its market development plan. At this stage, the demand for capital rises rapidly. Because it is difficult for start-ups to solve the demand for funds at this stage through self-accumulation and debt financing, venture capital is still their main investment form.
4. Expansion period (transportation)
This stage is roughly equivalent to the later pilot stage and industrialization stage divided by China. Enterprises began to sell products and services, but the expenditure was still greater than the income. After the initial trial marketing stage is successful, enterprises need to invest money to improve their production and sales capabilities. At this stage, the production, sales and service of enterprises have been guaranteed to be successful. Enterprises may have to set up their own sales teams, expand production lines, enhance their research and development stamina, further explore the market, or expand their production capacity or service capacity. At this stage, enterprises gradually formed economic scale and began to reach the market share target. At this time, the success rate is close to 70%, and enterprises begin to consider listing plans. The financing activity at this stage is also called mezzanine, which means "mezzanine building between the first floor and the second floor" in English. Can be understood as "connecting the preceding with the following" funds. Whether it is expansion funds or expansion funds before public listing. This stage means that enterprises are between venture capital and stock market investment.
Venture capital invested at this stage usually has two purposes:
(1) Based on previous performance, the risk is greatly reduced. The management and operation of enterprises are basically in place. The successful performance greatly reduced the risk.
(2) It can grow and mature rapidly after one or two years. The reason why this stage is attractive to venture capitalists is that enterprises can quickly mature and approach the level of public listing. If the enterprise has this intention, the venture capital involved in this stage will help it complete the leap to public listing. After the public listing, venture capitalists complete their mission and quit the enterprise. Therefore, the investment in the stage of "connecting the preceding with the following" can be "fast-forward and fast-out" for venture capitalists, with strong liquidity.
At this stage, the demand for funds is even greater. Conservative or large venture capital institutions often hope to provide venture capital at this stage. With the increase of equity capital, enterprises can also strive for various forms of funds, including private equity funds, secured liabilities, unsecured convertible bonds, preferred stocks and so on.
5. Profit period
At this stage, the sales revenue of the enterprise is higher than the expenditure, resulting in net income, and venture capitalists begin to consider withdrawing. For enterprises, one of the best financing methods at this stage is to go public by issuing shares. On the one hand, the funds obtained from successful listing have increased the stamina for the development of enterprises, broadened the scope and scale of business, and on the other hand, created conditions for venture capitalists to quit. Venture capitalists usually quit through public listing, but sometimes they quit through mergers and acquisitions.
To sum up, venture capital generally mainly invests in the establishment stage, growth stage and expansion stage. Small-scale and flexible venture capital institutions mainly invest in the first two stages, while large-scale and relatively conservative venture capital institutions often invest in the latter stage.
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