The umbrella term of the market in which start-ups with external financing requirements are moving towards an exit model is “emerging growth.” This involves helping a start-up achieve an enormous increase in value through a so-called venture case and external money, which is usually realized in exit scenarios.

Financing rounds such as capital increases or convertible loans from venture capital investors are an essential part of this in order, on the one hand, to allow liquidity to flow into the company and, on the other hand, to actually realize the increase in value. In general terms, the financing cycle of start-ups can be described in a phased model. However, every start-up follows its own rhythm, with industries such as pharmaceuticals and biotech also having a particular influence. Put simply, there is a different frequency or needs in the individual phases and financing round for each capital requirement, per sector and per model, but these also follow a rough pattern.

Basically, the financing of every start-up can therefore be divided into three stages, which in turn are divided into phases. Each phase is accompanied by an associated financing round:

• A. Early Stage: (I) Seed phase (II) Startup phase (II)

• B: Growth Stage: (III) growth phase (IV) bridge phase

• C: Later Stage: Final phase (V)

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FINANCING PHASES

1st early stage

Start-up financing regularly starts in the seed phase. As a rule, this is financed from own funds and reserves, as well as bootstrapping and Friends & Family. Founders only start here with loans, subsidies and venture capital when the capital requirement is very high.

a) Seed phase

In the seed phase, you literally plant the seed for your company. During this early start-up phase, the focus here is on developing the business model and the product or service. Your capital requirement therefore depends on whether your idea is a service or a product. Since you are mainly involved in strategic planning, administrative tasks and brainstorming, the capital requirement is not as high as is typical in other stages:

• State funding programs
• Own reserves
• Friends & family
• Bootstrapping

b) Pre-seed or start-up phase

In this phase, you usually set up a corporation, as well as the first real financing from outside funds. The focus is on setting up a company and launching and adapting products or services.

Compared to the seed phase, the start-up's capital requirements are now much higher, as the funds flow into the company and this must be built up and expanded, and on the other hand must be protected against liquidity bottlenecks, liabilities and insolvency. Only external advice (legal and tax) is added to the marketing concept and product expansion.

Financing is typically provided by:

• Business Angel
• Early-stage venture capital investors
• Private loans
• incubators

The usual form of financing is the convertible loan or convertible loan agreement, which has its advantages in this phase, as it is usually still difficult to determine a company valuation here. Foreign investors like to work here with a SAFE contract, which, however, is similar to the convertible loan.

If you are interested in this form of financing, you can Schedule a free consultation here.

2nd Growth Stage

The growth phase in emerging growth can in turn be divided into two phases, the growth phase and the bridge phase.

a) Growth phase

In order to build up a team and customers, as well as establish your product, a first round of financing for your start-up is now necessary (if not already done). This phase separates the wheat from the chaff, so to speak, as it is about convincing VC investors of you for the first time and overtaking any competition on the market.

Financing is usually provided through convertible loan agreements from business angels, or capital increases (equity financing) through venture capital funds. It is usually a good idea to pool business angels and/or combine them in a joint contract in order to simplify further financing rounds.

If you are interested in this form of financing, you can Here is a free consultation agree.

b) Bridge phase

In this phase, the aim is to establish a national and possibly also international sales network, to expand the team and thus also to increase market share. As a result of regular investor talks, it is now time to think about a possible IPO.

In this phase, you regularly need higher capital, which should implement far-reaching and long-term measures. This is done either through a capital increase, if it is appropriate in terms of value, and/or secodaries are already to take place, or through so-called bridge financing, which is similar to a convertible loan.

3RD LATER STAGE

The final phase takes place last. In doing so, you take restructuring measures, move in C-level levels (i.e. management levels), leave the lean startup hierarchies and prepare the company for your exit, which either ends in an IPO or buyout for you. That is why the previous founding team has already been supplemented by experienced, external managers in order to bring a further, objective view of the company and management overall.

Since capital requirements vary, this depends on the growth and individual circumstances of the company and is usually achieved through the following options:

• Financing from investors (PE or VC)
• Debt capital
• Stock market activity
• Sale of shares

If not already done, the later stage is a strategically excellent time to sell part of your shares (so-called secondaries). Because this gives you capital for your shares that you can now use privately, and you will also remain with the company for the most part and receive further economically valuable input and network from the buyers as new shareholders.

4. CONCLUSION

This model is only a general outline of actual behavior in emerging growth. There are few general statements, except that every financing should be well thought out, prepared and strategically structured.

As a founder, you lose shares in percentage terms with each round. In return, the value of the company grows. From a founder's point of view, it is therefore important to be able to call up a very high value during the financing round and to think ahead two to three steps with regard to the company's expansion plans (bridge financing) or private life situation (secondaries).

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