A type of private equity fund that invest in companies in the early stages of their development. The investment often is in the form of equity but can be in convertible preferred shares or convertible debt.
Categorisation of venture capital investments is based on the company’s stage of development. Terminology used to identify venture firm investment at different stages of the company’s life includes the following:
The formative stage refers to investments made during a firm’s earliest period and comprises three distinct phases.
- Angel investing is capital provided at the idea stage. Funds may be used to transform the idea into a business plan and to assess market potential.
- Seed stage financing refers to investments made for product development, marketing, and market research.
- Early stage financing is provided to companies moving toward operation but before commercial production and sales have occurred.
Later stage refers to the stage where a company already has production and sales and is operating as a commercial entity. Investment funds provided at this stage are typically used for expansion of production and increasing sales through an expanded marketing campaign.
Mezzanine-stage financing refers to capital provided to an established company to prepare it for an IPO. It is the bridge between the expanding company and becoming a public listed company.
