Financing in different stages

The financing in a business idea's proof-of-concept stage is a challenge with existing Finnish financing instruments because there are so few financing instruments available in the form of subsidies for the early commercial stage. The proof-of-concept stage refers to the realization of the business model, technology or some other critical factor in business to demonstrate its feasibility before one can attract investment to start-up the business. When the feasibility has been verified, capital investors will be more ready to invest in the company. On the other hand, the entrepreneur obtains a better perspective about his/her business idea's feasibility and opportunities when negotiating about financing.

During the seed and start-up stage, it is usual to try to gather the company's financing from the entrepreneur and his/her close team. A business angel may provide financing during the most risky seed and start-up stage. When the company is able to self-finance development projects, it can apply for public financing for its development and R&D projects e.g. from Tekes. At this early stage, the use of subsidies is advisable because this does not dilute the entrepreneurship's share in his/her enterprise.

If the business idea is worth risk financing, the first actual financing series (so-called Series A) means often that the first professional venture capital investor or an alliance of several investors will join the enterprise. At this stage, roughly half of the company's ownership will be transferred to the investor(s). Typical goals in this financing series are the recruitment of a top team, continuation of development of the product and business and preparation for the next round of financing. It is essential to achieve this middle goal and that there has been an increase in the company's value so that the next financing round can be realized at a higher valuation level for the enterprise.

As the company proceeds through this series, (Series B, C etc.) the technology risk has normally dimished, the product is ready and the business starts generating sales income. The objective of these financing rounds is to improve the functionality, move the business to the next size class, develop further the product portfolio and increase the company's value. The objective of these financing series can also be the strengthening of balance, working capital financing or financing of an acquisition. The capital investors are seeking to exit the company so that they can take their profit. Their departure will happen with the help of initial public offering or mergers and acquisitions.