The capital that this will inject into the business can be used for things like mergers and acquisitions to cement your leading position in the market. To reach this point, your product must have considerable momentum behind it, with a solid user-base, significant revenues and massive growth potential. If you’re seeking to go public by listing on the stock market, then it means a big windfall for you and your team, and big opportunities for your business.
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At this stage, you’ll be looking to target much bigger VCs who have significant amounts of cash to invest and specialise in Series B and C levels of funding. However, they will want to see steady and consistent growth alongside good management practices and a solid understanding of both your existing market and the markets you want to expand into. Investors won’t necessarily be looking for your business to be making masses of profit at this point. The funding you get in the third stage will keep your basic operations running smoothly while you invest in things like product diversification, or maybe international expansion.
By the third stage of VC funding you should be taking in a reasonable revenue, have a substantial user base and have a good rate of growth.
You’ll be wanting to expand into wider audiences, and that could require significant amounts of cash. You should also have solid figures and analysis to back up your future growth plans, because second stage funding involves much larger numbers than the first two stages did. To get second stage funding, you should have proven that your team and your product can stand their ground against the competition. Even more confusingly, you may also sometimes hear it referred to it as Series A - and this is where things get serious. Confusingly, the ‘second stage’ is, actually, stage three. This means presenting a good, well-researched, strategic business plan, and focusing on those VCs that specialise in this stage of the startup journey. Start-up stages are about getting your product market-ready and launching it, so you need to convince VC investors that your concept really is going to reap dividends in the long term. However, making that jump requires a whole variety of new challenges such as marketing, hiring new staff, more product development, infrastructure to deliver at scale - and these things all cost money. Assuming that everything goes well at the seed stage and you’ve used your initial tranche of funding wisely, you should now have enough market analysis and product development under your belt to start selling your product or service.
However, bear in mind that the individual stages aren’t totally set in stone. These distinct ‘stages’ of VC funding are designed to guide the growth of your business in a sustainable way, giving you the best prospect of succeeding, while balancing risk with a potential reward for investors. In fact, the types of firms and size of deals you’ll be looking to do will change as your business evolves. But, as you’ll soon learn when you enter this new and mysterious world of funding, all VCs weren’t created equal. Venture Capital funding is an attractive option for many growing start-ups, giving you access to the cash you need to grow, alongside valuable advice and expertise from seasoned investors.
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