All You Need to Know About Later Stage Financing
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November 22, 2022
Startups need funds all the time. But businesses of all sizes also often require additional capital for various reasons. Later-stage financing is available to corporations already established in their respective markets.
Many venture capitalists look to invest in established businesses, so they are the ones offering later-stage financing. But what is it, and how does it work? Get all the details down below.
Overview of Later-Stage Financing
It’s more or less as it sounds — financing that focuses on established businesses.
Later-stage financing is for mid-sized businesses generating profit or those close to breaking even. Such enterprises have already undergone hurdles of growth involving debt and are actively looking for another round of financing.
The Way Later-Stage Financing Works
Businesses may require financing at different stages of their lives. For instance, there is seed funding that targets startups during their inception. Besides, there are Series B and Series C funding.
As mentioned, venture capitalists are the investors who offer later-stage financing. They purchase an ownership stake in businesses.
Enterprises in need of financing may sell some of their stock shares to venture capitalists. This transaction is mutually beneficial for both parties. Businesses raise capital by selling stock shares, while venture capitalists receive an ownership stake that may become valuable over time.
Pros And Cons of Later-Stage Financing For Businesses
| Pros | Cons |
|---|---|
| You get the capital you need to take your business to the next level. | Your ownership stake reduces. |
| You can get debt or equity-based later-stage financing. | Finding investors can be distracting at times. |
| At times, some investors offer advice and networking opportunities alongside funding. | Investors or lenders expect your business to expand quickly. |
Pros And Cons of Later-Stage Financing For Investors
| Pros | Cons |
|---|---|
| There’s a potential for higher returns since growing later-stage startups are often successful. | You miss out on early expanding returns and gravely low-priced stocks. |
| Noticeably less risky than investing in early-stage startups. | Late-stage companies still run the risk of annual revenue uncertainty. |
| Can own stocks in the company before it goes public. | All investments come with some kind of risk. |
Types of Later-Stage Investors
These are the kind of investors that generally support companies in need of later-stage financing.
1. Angel Investors
While these tend to be early-stage investors, there’s this entity — angel special purpose vehicle (SPV) that often invests in businesses requiring later-stage funding. An angel SVP collects capital from multiple investors to finance a company in return for equity.
Businesses in need of later-stage funding may already know such investors who may have invested in their company earlier. Angel SVPs invest in late-stage businesses to grow the number of shares they own.
2. Hedge Funds
These funds offer a way for wealthy individuals to bring in and invest their money together to beat average market returns. Generally, hedge fund investors use aggressive tactics to produce positive returns for investors. That is why they are more interested in rising later-stage startups, as they can potentially bring in higher returns.
3. Private Equity Funds
These funds are partnerships focused on buying and managing companies to drive up their value before selling. Private equity funds like hedge funds go for a later round of investment once a company has proven itself. Equity fund investors can help network on a large scale besides helping you with the funds.
4. Growth Funds
These are mutual funds that include companies with the potential to grow faster than their competitors. They tend to focus more on your financials than advising you.
5. Strategic Investors
These investors are often larger companies in a similar market space like you. Other than wanting equity in your company, these investors want licensing and distribution agreements! They may eventually want to buy your company by strategically investing in it first.
A Good Alternative To Getting Funds At Any Stage Of Your Business
MICROLOANS
As the name suggests, microloans are small loans accessible through money-borrowing apps like Lendee.
You can raise loan requests to investors using any microlending platform and get funds quickly. As for Lendee, you get instant access to a network of lenders who’ll compete to help you. Expect loans at a fair rate on Lendee.
The biggest perk of getting a microloan on Lendee is that you get flexible payback options to help improve your credit score. A successful small loan journey can help you get approved for a bigger, traditional loan in the future!
The Final Note
Microloans are a terrific option to get small business loans at every step of the way. But you need to evaluate your current situation to identify what works best for you.
Other than the prospects listed above, business lines of credit are also available that allow you to borrow money up to a limit. You only pay interest on the amount you borrow. As you pay down your balance, your borrowed amount is available again.
Business lines of credit are a good option, especially when you aren’t sure how much cash your business will need or when.