The following are the typical stages of business development:

Early Stage Financing

Seed Financing — A small amount of money involved (usually $50,000 or less). Funds are used to develop a concept. The earliest stage of financing.

R&D Financing — A tax advantaged partnership set up to finance product development. Investors secure tax write-offs for their investments. If the product becomes successful, they share in the profits.

Startup — Money is used for product development and initial marketing. While startup companies are organized, they have not sold products commercially.

First Stage — The entrepreneur usually has developed a prototype. Funds are used to initiate full scale manufacturing and sales.

Expansion Stage Financing

Second Stage — Working capital for the initial expansion of a company that is shipping product but may not yet be showing a profit.

Third Stage — Also called “Mezzanine” financing. Capital at this stage is used for major expansion including physical plant expansion, marketing, and working capital.

Fourth Stage — Also referred to as “bridge” financing. This is financing for a company expecting to go public within six months to a year. Often bridge financing is structured so that it can be repaid from the proceeds of a public underwriting.

Acquisition/Buyout Financing

Acquisition Financing — Funds provided to a firm to finance its acquisition of another company.

Management LBO — Funds provided to enable an operating management group to acquire a product line from either a public or private company concern.

Public Market — The purchase of over-the-counter stock. The venture investor is involved with improving the company.