STAGE 3: Growth or expansion stage
By this point, you?re on your way to building a successful business. You have largely assembled your team and the business has initial revenues of at least $1 million from the sales of your product or service. Note that some investors may require the business to achieve higher amounts of revenue before considering investment.
Funding sources:
- Venture capital investors (VCs) target high-growth businesses and therefore are attracted to this phase of company development. VCs look for businesses that can scale to $25 million to $100 million in revenue within three to five years.
- Angel investors may also provide growth capital for medium-growth businesses with $5 million to $25 million in revenue; they require more modest levels of total capital (e.g., $2 million to $5 million) over the life of the business.
Risks:
Here, the risk is significantly lower than in the early stages due to your demonstrated business traction, but in order to scale and grow your business to reach a critical mass, you need additional capital ($2 million to $10 million).
Expectations:
Growth-stage capital is often invested through a process of financing rounds, called the Series A, Series B and Series C rounds, named for the class of preferred shares issued to investors each time.
- Series A rounds may be the seed investment round, or the round immediately thereafter. Series A funds are used to achieve the important milestone of shipping commercial products to customers.
- Series B rounds are often used to scale the business from a marketing, sales, distribution, and operations perspective, and to take a business from its first $1 million of revenue to a scaled result of greater than $10 million of sales, thus approaching the cash-flow break-even point in the business.
- VCs and other investors hope that for most businesses, the Series C round will be the final round of funding that enables the business to achieve a significant scale in revenues of $25 million to $1 billion and to generate a positive cash flow from its operation, thus drawing interest for business partnerships (critical for further growth and attracting exit opportunities).
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Learn more about the other stages of company development:
Concept stage of company development
Start-up phase of company development
Later stage of company development
References
Canada?s Venture Capital& Private Equity Association. Retrieved April 19, 2009, from www.cvca.ca.
National Venture Capital Association. Retrieved April 19, 2009, from www.nvca.org/def.html.
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