Get It Right – Understanding the Stages of Private Equity Investing – Corporate/Commercial Law


Portugal: Doing It Right – Understanding the Stages of Private Equity Investing

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Fund

Venture capital funds are investment vehicles providing private equity investments to start-ups and small and medium-sized enterprises.

STAG Fund Management is a venture capital fund manager based in Portugal and offers such investments to Portuguese companies with high growth potential.

Fund investment steps

Companies can be invested in at different stages of their life cycle, and it is an important aspect of private equity investing to understand these different stages:

“Seed capital”

The term seed capital refers to the type of funding used to start developing an idea for a new product or service.

In this case, the financing is provided by private investors, usually in exchange for an equity stake in the company or a share in the profits of a product.

The majority of the seed capital a business raises usually comes from the business owner(s) and often; family, friends and other acquaintances.

Seed capital financing is considered high risk because the business is not fully functional and has no track record. This is why investors who provide seed capital financing often do so for an equity stake in the business.

“Startup”

Venture capital-oriented companies (usually called start-ups) usually focus on a single flagship product or service, which the founder wants to bring to the international market.

These companies usually do not have a fully developed business model and, more importantly, lack sufficient capital to move to the next phase of business.

Generally, the capital raised at this stage will be used for marketing, creating inventory and/or launching a new product or relaunching an existing product and/or service.

Once a start-up has demonstrated its feasibility, it is more likely to attract venture capital or angel investment, to provide the additional funds needed to really launch the business.

‘Early Stage’

Start-up investments are usually directed to newly created companies, which have completed the product development phase and have already started marketing, but are not yet making a profit.

These funds are generally devoted to improving manufacturing and distribution processes, as well as marketing.

‘Growth Stage’

Growth-stage investments are for companies that have proven their product in the market and have secured funding and generated revenue. These companies are growing and trying to grow, but may be facing obstacles in achieving that growth.

The focus here is not on pure innovation, but on expanding what already works for the company.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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