Lesson 2 of 6 · 13 min
Venture capital and the corporate life cycle
Venture capital funds young, high-growth companies in stages from idea to pre-IPO; the earlier the stage, the higher the risk and the return investors demand, and convertible preferred shares protect them on the way.
In short
- Across the corporate life cycle (seed, start-up, growth, maturity, decline), venture capital fits the early stages and buyout-style private equity the later ones; both can fit the growth stage.
- VC stages: pre-seed (angels, founders, friends and family), seed (first stage where VC funds usually invest), early stage (before commercial sales), later stage (after sales begin, before an IPO).
- Earlier stage = higher risk = higher required return. Valuing immature companies is highly subjective.
- Mezzanine-stage financing is bridge money just before an IPO or sale (a timing idea); mezzanine financing means hybrid instruments such as convertibles (a method idea).
- Convertible preferred shares align founders and investors and rank ahead of common shares in a liquidation.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.