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Investment and StartUps: Everything you need to know

Startups are usually a very attractive bet for any investor. When they achieve success, the return on profit more than multiplies the amounts invested. In addition, they are projects that are very dynamic, innovative and with a great capacity to succeed in the market.

The investments that are usually made in a startup can be divided into stages that usually correspond to the natural cycle of this type of company.

We can find up to four different phases in which different investor profiles act. It is true that not all these stages are fulfilled and that many startups disappear along the way. Only 10 percent make it to the end.

But let’s take a closer look at these phases…

Startups typically have four phases of investment

seed phase

The first phase is known as the seed phase . As its name suggests, everything necessary is done for our product to germinate and start working on the market.

We are almost in a very initial phase in which we prepare the ground (continuing with the metaphor) for the company to be able to carry out its activity or develop the product.

In this phase we can find that:

  • the human team is hired,
  • the agreements between the partners are specified ,
  • and the business model is developed,
  • and prototypes are also made (if the company has a technological nature).

At first (which can be considered even prior to this phase) the pertinent market studies should have been carried out to verify the viability of our idea and if there is a real and convenient recipient who is interested in it.

We are in a phase where prototypes are the protagonists and the design ideas that we can consider are more primary.

During this phase, the profiles that usually make investments can be concentrated mainly in three types: Family, Friends and Fool (FFF), accelerator companies (which also contain incubators) and Public Financing.

early phase

The second phase is known as the early or startup phase .

It is usually characterized above all because the Startup already has a minimum viable product that has been successfully tested.

It is time to launch our idea to the market, so it is necessary to develop a marketing and communication plan.

We will also be able to obtain data on how our company behaves and even obtain the first income.

In this part, the investor profile goes from belonging to the closest or public sphere to having a more professional nature.

Our Startup begins to have more visibility and can enter the orbit of the most specialized investors in the sector. Thus we find Business Angels (and their networks), equity platforms and specialized events.

In this way, the investor profile also collaborates with the development of the startup.

The Business Angels usually contribute their experience in the sector in addition to the economic investment.

Equity platforms are very popular today thanks to digital media (such as the famous crowdfundings ). Specialized events also manage to carry out promotional work.

At this point we can establish a kind of limit that not all startups usually manage to cross.

growth phase

The third phase or growth phase or growth.

At this stage, the desired market position has already been achieved. The much-desired balance is found in which benefits are beginning to appear. The behavior of the competition becomes important in decision making.

exit phase

This fourth phase is the one desired by most.

What is intended in this phase is to sell the startup or part of it.

This can be done in many ways:

  • Selling the company to a third party
  • Making a Public Offer for Sale (OPV)

But as we will see, the needs in each of the phases are going to be different…

Investment needs in startups

The goal is to gain market share while controlling relevant costs.

The Startup begins to look for the point that allows it to take off, achieving a balance between costs and benefits. They begin to spend more on personnel and marketing. At this time, professional profiles of investors and corporate funds appear that also contribute their knowledge and experiences.

Faced with the need for powerful capital injections, venture capital funds are beginning to play an important role . Dedicated to the investment of early companies and startups, they are of great importance since they are a great activation engine for this type of company.

Closely linked to this phase we already find ourselves with the fourth stage or phase of expansion . It is the natural continuation of the growth of the startup.

When a necessary national market share has been reached, the aim is to continue growth internationally or to markets in other segments. It is quite a complicated task since great skill is required to ensure that the product is successful in a different recipient.

For this reason, it is necessary to strengthen the management team and hire professionals with sufficient expertise to carry out this type of operation. The necessary investment is obtained through successive rounds of companies that have already been betting on the project and that carry out a follow-on. Once again, venture capital comes into play as a major investment operator in the face of the lack of response from bank credit.

We can mention a last phase as I told you before, which is the one to which it can be said that all startups aspire. In this final phase, what is known as “ making an Exit” occurs. It consists of the sale of the company to a third party or the entry into the stock market. It is also common for venture capital funds to acquire the startups that they consider most interesting.

Do you prefer that we summarize it for you in a video? Well here you have it…

Video summary on investment and startups

On our YouTube channel you can access hundreds of videos for entrepreneurs, freelancers and SMEs. And among them, one in which we make a brief summary of the investment phases in startups.

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