Venture Capital (or simply VC) funding has an important impact on the economy: it is a critical driver in the growth phase of many small companies. It is financing provided for startup companies that want to grow before they can go public.
The step by step
The business submits a business plan to the venture capital firm. The venture capital firm will then investigate the business: business model, products, financial position and performance, the history of the principals of the business, the industry it’s engaged in, etc. If the venture capital firm decides to go ahead and invest in the startup, they will make a proposal. That will include the amount of the investment that they are willing to make. The firm will also specify the equity stake in the company that they expect to have in return. That investment of VC money typically takes place in phases, commonly referred to as rounds.
These funding rounds (Series A, Series B and Series C, look below) provide outside investors the opportunity to invest cash in a growing company in exchange for equity, or partial ownership of that company.
One of the key distinctions between funding rounds has to do with the valuation of the business, as well as its maturity level and growth prospects.
Take a look at the funding’s stages:
Seed: is the first official equity funding stage. It typically represents the first official money that a business venture or enterprise raises. Seed funding helps a company to finance its first steps, including things like market research and product development.
Series A: once a business has developed a track record (an established user base, consistent revenue figures, or some other key performance indicator), that company may opt for Series A funding in order to further optimize its user base and product offerings. In this round, it’s important to have a plan for developing a business model that will generate long-term profit.
Series B: take the business to the next level, by expanding market reach. Companies that have gone through seed and Series A funding rounds have already developed substantial user bases and have proven to investors that they are prepared for success on a larger scale. Series B funding is used to grow the company so that it can meet these levels of demand.
Series C: is focused on scaling the company, growing as quickly and as successfully as possible.This is the stage where companies look for additional funding in order to help them develop new products, expand into new markets, or even to acquire other companies.
You can find venture capital firms through the Norwegian Venture Capital Association (NVCA).