Do you want to grow your business, but you don't have enough financial resources?

The search for corporate finance is then a logical step for many entrepreneurs. Finding growth capital can be very labour-intensive.

Therefore, first determine who you are ideal investor is. The type of investor is strongly related to the phase your company is in. In this blog we provide an overview of the financing phases that you will encounter and the corresponding ideal investors.

We first give a brief overview of the different financing phases. Then we go deeper into each phase.

Find the right investor
Decide who you are first ideal investor is.

Turnover as the most important variable

There are two variables when determining your funding stage. The first is time. The second, and the most important factor in determining the right funding stage, is company turnover. 

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Don't have any sales yet? Then you will find yourself in the Valley of Death. This usually involves an investment in the form of Seed Capital. When your turnover grows, you end up in the Early Stage.

In this phase, your product or service is viable and, in the best case scenario, you have already made a profit. 

Over time, your track record also starts to play a role. If you have been growing for several years, you will enter the Later Stage. The logical next phase to this is the Initial Public Offering (IPO). Below you can see a simple representation of the financing cycle. 

Funding cycle for financing
Image via startupxlpore

You have an idea: Seed Capital phase

The Seed Capital phase is also referred to as the start-up phase of a company. Here are two possibilities:

  • The company doesn't have a product or service yet, just a plan or idea.
  • The company already has a prototype, but does not yet make any significant turnover.

In both cases, investors who get in are taking a big risk. After all, the question is whether the company will ever be able to leave the Valley of Death.

Tip: grow your business smartly with the Angry Birds growing method.

In the Seed Capital stage, there are many options to obtain venture capital. For example, it can be useful to participate in an accelerator program. Then, in addition to a financial investment, active help is also offered to achieve growth.

An accelerator program is ideal for budding entrepreneurs to get off to a flying start. 

Other options to raise money in the Seed Capital phase are angel investors and Believers, Family & Friends. An angel investor is a wealthy individual who actively invests his or her own money in your company.

Believers, Family & Friends are people from your environment who lend you money or invest in your company. 

Option three to raise money in the Seed Capital phase is the Seed VCs (Venture Capitalists). These are usually regional funds that provide capital in the form of a loan. With the Seed VCs you should expect a professional process. You don't get there with a plan on a beer mat.

The interest rates are also often considerable. Therefore write a good investment memorandum: a document that contains all the information and details of your company to give investors a good picture of your company. This is also very useful in the following phases.

Further growth in your home market: Early Stage

If you have left the Valley of Death, you are in the Early Stage. Now it is time for further expansion in your home market. Your product or service is complete and so is your management team. 

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In the ideal situation, you already have enough turnover to break even. If not, it is valuable to at least have key figures with regard to the intended growth. You can think of an elaboration of the Total Addressable Market (TAM) and insight into the growth figures of the past period. 

In the Early Stage, the amount you want to collect depends on your turnover. Do you still have little turnover? Then we are talking about a First Early Stage round with a maximum of about 1 million in investment capital. In the Second Early Stage round, you're already moving towards 5 million or more. This is also the phase in which business angels and the Believers, Family & Friends drop out. 

The Early Stage corporate financing options are professional VCs, corporate takeovers or partnerships. When you grow even further and therefore need more money, you are in the Later Stage. 

Raising money for investment

Expansion into New Markets: Later Stage 

In the Later Stage, it is time for expansion into new markets, both domestically and abroad. You have more customers, more locations and higher turnover and cash flow. Your organization is also complete and it is now mainly the art of scaling. 

The investment in this phase is between 5 and 20 million. Mezzanine financing also becomes realistic in this phase. This is usually a subordinated loan and is therefore somewhere between a loan and venture capital. 

Tip: this is the importance of customer retention.

You have now reached the stage where your reputation is standing, your product is highly sought after and you can demonstrate profitability. This, in combination with a good investment plan, makes it possible to raise 20 to 50 million. In this phase, in addition to Later Stage VCs, Strategic VCs also come into the picture.

Time to go public: IPO phase

In this phase you do an IPO: an Initial Public Offering, or a stock market introduction of your company. Your company is going to make the step from a private company to a public company. 

Where you used to have to deal with a relatively small group of shareholders, your shares are now wholly or partly traded on the stock exchange. Your company enters a new phase with different rules and obligations.

IPO financing

Next step: the Dutch VC landscape

It has probably become clear to you: each phase involves a different type of investor. Every year, Peak Capital produces an overview of the Dutch VC ecosystem. This is a handy overview that allows you to focus on your longlist and shortlist. After all, there is no point in going to the table with a Later Stage VC if you are still in the Seed Capital phase or Early Stage. 

Need business financing? These investors fit the different phases of your company:

Seed-Capital stage

  • angel investor
  • Believers, Family & Friends 
  • Seed VCs

Earlystage

  • Professional VCs
  • Acquisitions
  • Partnerships

Later Internship

  • Later Stage VCs
  • Strategic VCs

IPO phase 

  • Shareholders
Tech venture capital infographic
Image via https://peak.capital/nltechvcmap/