Venture Capital Funds are investment vehicles providing private equity investment for start-ups and small to medium-sized companies.
Stages of Fund Investment
Companies can be invested into at different stages of their life cycle, and it is an important aspect of private equity investment to understand these different stages:
The term seed capital refers to the type of financing used to begin developing an idea for a new product or service.
In this case, the funding is provided by private investors, usually in exchange for an equity stake in the company, or for a share in the profit of a product.
The majority of the seed capital a company raises generally comes from the business owner(s) and often; family, friends, and other acquaintances.
Seed capital funding is considered high-risk because the business is not fully functional and has no track record. This is why investors who provide seed capital funding often do so therefore for a stake in the company.
Venture capital investment aim companies (usually referred to as start-ups) are generally focused around a single flagship product or service, that the founder wants to bring to the international market.
These companies typically do not have a fully developed business model and, more importantly, lack adequate capital to move on to the next phase of business.
Generally, the capital, raised at this stage will be used for marketing, creation of stock and/or the launching of a new product or re-launch of an existing product and/or service.
Once a start-up has demonstrated feasibility, it is more likely to attract venture capital or angel investment, to provide the additional funds necessary to really get the business up and running.
An early-stage investment is generally directed towards newly established companies, which have completed the product development phase and have already started trading but are not as yet earning any profit.
Such funding is generally dedicated to improving the manufacturing and distribution processes, as well as undertaking marketing.
Growth stage investment is targeted at companies that have proven their product in the marketplace and have secured finance and generated income. These companies are in the process of growing and trying to scale up but are possibly encountering some obstacles in achieving this growth.
The focus here is not on pure innovation but expanding on what is already working for the business.
STAG Fund Management is a Venture Capital Fund Manager based in Portugal and provides such investments to Portuguese companies offering strong growth potential.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Source: CCIPV / Antonio Pereira / STAG Fund Management Limited