Stages of Tech Investing
When planning to launch a tech start-up, the first thing you need is money to fuel its development and momentum. You may not have thought of raising money during the initial stages of planning to build a tech start-up, but you eventually need capital of some sort to achieve your goals. It determines how far your business can go in the long run.
To raise capital, you should first understand the different stages of funding and investing. In this way, you can devise a clear plan of action to know when you can approach investors. It also gives you the confidence to communicate and convince investors at each stage of mutual exchange.
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Early Stage Investing
This is the initial stage of seed funding, which is followed by start-up funding to develop the idea and early growth funding to engage the investors. At this early stage of investing, most of the investors are your close family, friends and early angel investors who like your idea and agree to invest in it. The investors usually take considerable risks including product risk, development, and market risk, as well as team and implementation risk.
Because of a great degree of uncertainty, this early stage often involves a variety of financing options in addition to family and friends financing. It usually takes a longer time to complete as compared to later stages. The different terms used in the industry for raising funding at this stage, such, pre-seed stage, seed stage, etc. are all attempts to engage and classify different risky sub-stages.
This is a time consuming and crucial stage of a tech start-up’s life. At this stage, the company tries to gather up data, evidence, and traction to justify the theory that this can be a real business.
Growth Stage Investing
The growth stage is a phase when the company is financed through an investment round. It’s the most crucial stage of a company’s life because this is when it needs to make a complex transition.
It should transition from a start-up with a great, scalable idea to one that is rapidly growing and ascending as predicted. The growth investing round takes place when the investors are convinced that a start-up can meet expectations. Angels, Syndicates, and early stage VCs participate in this round of investing.
In concept, this is the theory stage where the business proves its idea and worth. At this stage, the company has a product, team, and some customers. Majority of investors like this stage because it essentially hits the “goldilocks zone”, not to hot, but not too cold. Companies are now trying to prove their hypothesis and scale it more broadly. The main risk for investors is that a start-up cannot assess how to achieve scalability or handle scalability.
Late Growth Stage
After completing the growth stage, the next phase is all about exponential growth and capturing more market share. It can also be referred to as the expansion stage. Investors at this stage can be conventional VC organizations, private equity companies, or any commercial or strategic investor.
At this stage, the start-up completes the growth and series A phase; so, it has a proper marketing, deployment and a customer support team in place. The start-up has established the value of its product in the market and is successfully meeting its sales target.
It only needs more initiative to achieve growth in the market. The risk calculation is entirely different from other stages. It is less risky but may give smaller returns however overall chances of returns are higher. The risks relate mostly to the start-up’s expansion toward other working activities rather than its survival.
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