What are different phases at startup

Investment phases


Investment phases, financing phases. Based on life cycle models, the development process of young companies can be divided into phases. The investment phases describe those phases in which an investment is made in a company. A one-time investment is rarely enough for the entire life cycle of a company. At different stages, capital may be required for further expansion or to bridge liquidity bottlenecks. The division into the three main phases of the investment phase (early stages; idea and foundation), expansion stages (national and international expansion) and later stages (restructuring and succession) has prevailed. Typical features and financing issues can be assigned to the main phases:

1. Early stages, early phases:
a) features: The early stage is further divided into the seed phase and the start-up phase. (1) Seed phase, pre-foundation phase: In the seed phase, there is only an idea for a product, a service or a prototype that has not yet been fully developed. A business plan has to be drawn up, the preparation of the foundation begins and the organizational structure has to be planned. (2) Start-up phase: It comprises the steps from the establishment of a company to its market launch, from research and development to the establishment of production and sales. In the start-up phase, the company has been in existence for up to a year. An advanced prototype exists or the product is largely fully developed and must be prepared for market launch. This phase also includes production planning and preparation, decisions between in-house and third-party production or between sales cooperations and the establishment of your own sales network. The acquisition of customers begins and further financing rounds are usually necessary in the further course.
b) financing: The capital to be invested in the early phases is also known as venture capital. (1) In the seed phase, the funding is used to develop and convert an idea into usable results or a prototype. The capital requirement for early product development and start-up preparations is rather low. In the case of research-intensive technologies, however, the costs can be very high. Sources to cover the capital requirement (usually 50,000 to 500,000 euros) are therefore often state subsidies and our own financial reserves. (2) In this phase, capital is required for the actual start-up financing. In addition, product development, preparation for production and the first marketing activities must be financed. This leads to a considerable need for financing, because the increased expenses are offset by hardly any income despite initial sales. The capital to cover the investments mostly comes from private loans of the founders or their families and friends, the equity already available, supplier loans, from business angels, venture capital companies or from subsidies. Classic forms of loan financing are hardly possible if the founder cannot vouch for the risk of failure.

2. Expansion stages (Growth phases, expansion phase, growth phase):
a) features: (1) Growth phase: For a successful business development, rapid market penetration must be achieved. The focus is initially on building up sales. Despite rapidly increasing sales, the company is usually not in the profit zone at the beginning. This only happens with the expansion of the sales system and production. (2) Bridge phase (pre-IPO): Further competitors enter the market and the expansion of the sales system (national or international) is usually followed by diversification. Any IPO is also prepared in this phase.
b) financing: (1) Growth phase: The capital requirement to finance market penetration increases sharply with the emerging competition. Investments in the development and expansion of sales and the further development of products or services are necessary. The search for lenders begins. In this phase, financing through outside capital is for the first time possible on a larger scale and makes sense. In addition, further venture capital can be brought in from business angels or venture capital companies. (2) Bridge phase: In order to raise capital for a far-reaching expansion, the company is often listed on the stock exchange, for which bridge financing is necessary. Bridge financing is often structured in such a way that it can be repaid from the proceeds of the IPO. There are investment banks and underwriting companies that specialize in this area.

3. Later stages, final phases:
a) features: With later stage financing, additional capital is necessary for renovations, restructuring or for further diversification into new products or services. The critical factor in this phase is often the management, which usually still consists of the founder or the founding team and now has to be supplemented by experienced managers or even replaced by them due to an upcoming succession plan.
b) financing: The forms of financing in this phase are very different. In the case of a turn-around, a restructuring or a management buy-out as well as a management buy-in, financing is primarily provided by investors and outside capital (buy-out financing). However, financing through the company's own funds as well as subsidies or profits generated through the IPO are an alternative.

From the "Gabler Kompakt-Lexikon Entrepreneurship: Look up, understand, apply 2,000 terms". The Gabler compact encyclopedia company foundation offers over 2,000 current definitions of terms on the topics of start-up planning / process / management, business models / concepts / development as well as corporate finance and funding programs. Editor Professor Dr. Tobias Kollmann is a recognized expert for all questions relating to business start-ups and development. The target group of the lexicon are company founders, start-up consultants, venture capital companies, investment managers, business consultants as well as students and lecturers in economics at technical colleges and universities. Order now from amazon