Investment phases

To successfully build and grow a company, it needs one thing above all: capital. And this capital comes into the company through various investments. However, it is important to note that there are different investment requirements at different points in the company's development. In order to best analyze the different requirements, it is best to focus on the different phases of the company.

Company phases

The life cycle of a company consists of four different phases:

• Foundation phase
• Growth phase
• Maturity phase
• Final phase

Foundation phase

The start-up phase refers to all the processes that take place from the initial idea to the official foundation and market launch. During the start-up phase of a company, a product idea and the product itself are developed, a company form is determined and the first customers are acquired.

Growth phase

During the growth phase, the company begins to establish itself on the market. The customer base continues to grow and attempts are made to generate profits as quickly as possible. One of the biggest challenges in this phase is building up the sales network.

Maturity phase

During the maturity phase, the product and the company have already established themselves. This is followed by restructuring and diversification of the product range.

Final phase

The final phase of a company occurs as soon as a company is sold or the founders are replaced by successors. This is where the company's life cycle ends.

Start-up phases

However, these four major phases of a company's life cycle can be further subdivided into the so-called start-up phases.

The start-up phases consist of

• the pre-seed stage (orientation phase)
• the seed stage (planning phase)
• the start-up stage (foundation and development phase)
• the growth stage (growth phase)
• the later stage
• the Steady Stage

Pre-seed stage

During the pre-seed stage, also known as the orientation phase, a concrete business idea has often not yet been found. The initial focus here is on brainstorming and brainstorming. It is also important here to check the extent to which an idea can be implemented. It is also helpful to get feedback from outside, for example from family and friends, especially for various ideas. During the pre-seed phase, a rough concept for the business idea is usually developed, which is then fleshed out in the subsequent phases.

Seed stage

In the seed stage, the so-called planning phase, you already know your business idea and have an initial idea of the suitable target group and their needs and challenges. A business model is developed from the business idea and a business plan is drawn up. An initial prototype or minimum viable product(MVP) is also created. The foundation of the start-up is also planned in this phase. Things such as the choice of a suitable legal form, the location and possible financing partners should be determined here. In this phase, capital often comes from VCs that focus on early-stage start-ups and from business angels.

Start-up stage

Now that the basic requirements for the start-up are in place, it's time for the actual start-up and development phase. This is followed by the business registration, registration with the local tax office and entry in the commercial register. This phase is also about setting up the company organization and sales. This is followed by market entry and the establishment of the product and start-up in the market. The respective market and competitive situation should be constantly monitored and possible changes should be dealt with quickly. This start-up phase usually lasts until the end of the second financial year.

Growth stage

The growth stage occurs as soon as the company starts to grow. Increasing revenue is generated and new customers are acquired. Growing employee numbers are also a feature of this phase.

Later stage

During the later stage, also known as the maturity phase, the start-up continues to grow and mature. The company organization and structures are professionalized and the start-up becomes ready for the stock market.

Steady stage

The so-called steady stage occurs as soon as a start-up has become a company. Profits are generated and initial changes are made. This is often followed by the introduction of new products (diversification), theIPO (initial public offering) or the sale of the start-up to another company.

Investment phases

These different phases of start-up development can now be easily transferred to the investment phases. The distinction between the different investment phases primarily serves the different needs during these phases and the different capital requirements depending on the phase, which in turn is accompanied by the use of different sources of capital. Initially, however, the investment phases can be divided into three main phases:

• Early Stages
• Expansion Stages
• Later stages

Early Stages

The investment phases that are assigned to the early stages are: the seed phase and the start-up phase. These stages include all start-ups that are still in the idea and foundation phase. Initially, they are usually financed by their own funds (also known as bootstrapping ) or by VC companies and business angels.

Seed phase

Characteristics:

Those start-ups that are still in the seed phase already have an idea of their product, but not yet an MVP (not yet a finished prototype). In this phase, the main focus is on working out the business concept, drawing up a business plan, arranging the organizational structure and preparing the foundation.

Financing:

The capital requirement in the seed phase is usually still very low. Here, capital is primarily required for product development and start-up preparation. However, in the case of research-intensive technologies that are required for product development, the seed capital can be between €50,000-500,000. This is usually raised from the company's own financial reserves or state subsidies. However, there are also some venture capital companies that specialize in such early-stage investments. One of these, for example, is High-Tech Gründerfonds. This seed investor invests in technology-oriented start-ups in particular and provides start-ups with the necessary seed capital as well as management support and advice.

Start-up phase

Characteristics:

All start-ups that are less than 1 year old are in this phase. The start-up phase usually begins with the founding of the company and the market launch of the product. There is already an advanced prototype that is being tested on the market. The main challenges here are setting up production and establishing a sales network as well as customer acquisition.

Financing:

Financing in this phase often still comes from private loans from the founders and capital from friends or family. In some cases, however, initial investors are also brought on board. For example, business angels or venture capital companies. Another option here is financing through the ERP Start-up Fund. This fund is a special form of public equity financing by KfW. It takes a monetary stake in the start-up, but does not participate in the management. However, an important prerequisite for this type of financing is the participation of another lead investor who provides the same amount of capital as KfW.

Expansion stages

The investment phases of the expansion stages start as soon as the respective start-up is aiming for national or international expansion. They are divided into the so-called growth phase and bridge phase.

Growth phase

Characteristics:

In this phase, the start-up is already starting to grow, but is not necessarily in the profit zone yet. The cash flow generated is therefore often not yet sufficient to make larger investments and establish itself on the market. Here, further investment from lenders is needed to expand the distribution network and improve the product range. However, companies that have already been able to generate initial profits are naturally a more attractive investment target in the eyes of investors.

Financing:

Additional capital is required to build up and further develop sales and products, which usually comes from VC companies or business angels. However, there is also the possibility for the founders to acquire an investment loan here, as they can now already demonstrate initial success and therefore have a higher credit rating than at the beginning of the start-up, for example.

Bridge phase (pre-IPO)

Characteristics:

During the so-called bridge phase, further competitors enter the market. In order to keep up with the competition, the company's own sales network should be further expanded and its own products diversified if necessary. Large amounts of capital are required to expand further and improve the products. In some cases, a possible IPO is also prepared during this phase, which then brings the start-up further capital through share sales.

Financing:

However, before the respective IPO and further capital procurement can be completed, the start-up requires bridge financing. Investments that exceed the start-up's cash flow in the short term, such as the planned IPO or the payment of shareholders, are bridged in the short term by this bridge financing. In the long term, these investments are then to be repaid through the proceeds of the IPO. Such bridge financing is usually carried out by investment banks and issuing companies.

Later stages

Characteristics:

In this investment phase, the market in which the company's products are sold is often already saturated. In order to still be able to capture market share, the products or services are diversified and the company is restructured, e.g. by adding to or replacing the management. The restructuring of the company is referred to as a turnaround, while in a management buy-in an external management team takes over the company. In a management buy-out, the company is taken over by the existing management, which previously held no shares.

Financing

Financing in this phase is very diverse. In the case of a turnaround, a management buy-out and a management buy-in, financing is often provided by investors and outside capital. However, it is also possible for the company to finance itself from its own funds or profits from the IPO.