Venture Financing

IBS Ravi

Venture Financing
To start a new startup company or to bring
a new product to the market, the venture
needs to attract funding.
There are several categories of financing
possibilities.
Smaller ventures sometimes rely on family
funding, loans from friends, personal bank
loans.

 For more ambitious projects, some

companies need more than what
mentioned above, some ventures have
access to rare funding resources called
angel investors.
These are private investors who are using
their own capital to finance a venture's
need..

 Apart from these investors, there are also

venture capitalist firms (VC firms) who are
specialized in financing new ventures
against a lucrative return.

Venture capital financing

process
1)
2)
3)
4)
5)

seed stage
start-up stage
second stage
third stage
bridge or re-Initial Public Offering (IPO)
stage

Seed stage
This is where the seed funding takes place.
It is considered as the setup stage where a person
or a venture approaches an angel investor or an
investor in a VC firm for funding for their
idea/product.
During this stage, the person or venture has to
convince the investor why the idea/product is
worthwhile.
The investor will investigate into the technical and
the economical feasibility (Feasibility Study) of the
idea.

Seed Stage

Start-up stage

If the idea/product/process is qualified for

further investigation and/or investment, the
process will go to the second stage; this is
also called the start-up stage.
A business plan is presented by the
attendant of the venture to the VC firm.
A management team is being formed to
run the venture. If the company has a
board of directors, a person from the VC
firms will take seats at the board of
directors.

Start up Stage

Second stage
At this stage, we presume that the idea
has been transformed into a product and
is being produced and sold.
This is the first encounter with the rest of
the market, the competitors.
The venture is trying to squeeze between
the rest and it tries to get some market
share from the competitors..

Second stage
This is one of the main goals at this stage.
Another important point is the cost.
The venture is trying to minimize their
losses in order to reach the break-even.
The management team has to handle very
decisively. The VC firm monitors the
management capability of the team.
This consists of how the management
team manages the development process
of the product and how they react to

Second Stage

Third stage
This stage is seen as the expansion/maturity
phase of the previous stage.
The venture tries to expand the market share
they gained in the previous stage.
This can be done by selling more amount of the
product and having a good marketing campaign.
Also, the venture will have to see whether it is
possible to cut down their production cost or
restructure the internal process.

3 Stage contd.
rd

This can become more visible by doing a SWOT

analysis.
It is used to figure out the strength, weakness,
opportunity and the threat the venture is facing and
how to deal with it.
Apart from expanding, the venture also starts to
investigate follow-up products and services.
In some cases, the venture also investigates how to
expand the life-cycle of the existing product/service.

3 Stage
rd

Bridge/pre-IPO stage
In general, this is the last stage of the
venture capital financing process.
The main goal of this stage is for the
venture to go public so that investors can
exit the venture with a profit
commensurate with the risk they have
taken.

Bridge/pre-IPO stage
At this stage, the venture achieves a
certain amount of market share.
This gives the venture some opportunities,
for example:
Merger with other companies
Keeping new competitors away from the
market
Eliminate competitors

Bridge / Pre-IPO Stage

Risk of Loss