EARLY STAGE FUNDING

SEED STAGE.   A relatively small amount of capital is provided to an inventor or entrepreneur to prove a specific concept. The funded work may involve Product Development (as opposed to "pure research"), but it rarely involves initial marketing.

START-UP STAGE.   Financing is provided to companies for use in Product Development and in Initial Marketing. These companies may be in the process of being organized or may have been in business only a short time. In either case, products have yet to be sold commercially. Generally, such businesses have assembled key management, have prepared their initial Business Plan, and have conducted at least initial Market Studies.

FIRST STAGE.   Financing is provided to companies that have expended their initial capital and now require funds to initiate commercial-scale manufacturing and sales.

EXPANSION FUNDING

SECOND STAGE.   Working Capital is provided for the expansion of a company which is producing and shipping products and which needs to support growing Accounts Receivables and Inventories. Although the company clearly has made progress, it may not yet be showing a profit at this stage.

THIRD STAGE.   Funds are provided for the major expansion of a company which has increasing sales volume and which is breaking even or has achieved initial profitability. Funds are utilized for further plant expansion, marketing, and working capital or for development of an improved product, a new technology, an expanded product line, or to penetrate new markets.

BRIDGE FINANCING.   Financing is provided for a company expected to "go public" within the next 6 to 12 months. Often, bridge financing is structured so that it can be repaid from the proceeds of a public offering. Bridge financing also can involve restructuring of major stockholder positions through secondary transactions. This is done if there are early investors who want to reduce or liquidate their positions. This also might be done following a management change so that the ownership position held by former management (and their relatives or associates) can be purchased prior to the company going public.

Source: Venture Economics, Wellesley, MA.

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