VC, seed, private equity, or CVC – Which way to go?
Kirjoittanut: Sanni Salokangas - tiimistä Kaaos.
Venture capital, seed investing, private equity, and corporate venture (CVC) are forms of investing in companies that are either early or late-stage startups or more mature companies. What form of investment fits the needs of your company depends on the stage of development, growth potential, whether its pre-revenue or pre-product, and your long-term goals. In this article we go through the key differences of the four investing models, so it is easier for you to navigate in the mine field of potential funding!
Venture capital (VC) is a form of investing for early-stage companies that aim for fast growth and have potential to becoming big and successful. Venture capital firms usually invest in startups in early or growth state of development and do it in exchange of equity in the company. One major benefit of giving up equity for this form of funding is that the VC often stay in active role to guide the company and provide connections and possibilities for networking within the industry.
Seed investing is also provided for early-stage startups in exchange for equity in the company. Seed investing consist of pre-seed and seed rounds and helps to get the company off the ground. Pre-seed is sought for market research and developing product, for example. Seed round is the first official funding round is usually used for developing the MVP. The difference between VC and seed investing is that seed rounds often consist of smaller amounts of capital for early-stage companies, even pre-product.
Private equity (PE) funding is provided for more mature companies that are looking for growth or reorganization. Private equity firms usually take up a dominating stake in the company or buy the previous owners out altogether. This is done to increase the company’s revenue, save or remodel organizations and eventually to sell it for profit.
Corporate venture (CVC) is capital provided by corporations to support startups and early-stage companies that align with the corporations’ future goals and strategies. They invest in new technology or products to accelerate innovation and competitive advantage. CVC firms can make the investment in the form of strategic partnerships, direct equity, or even joint ventures. This way corporations get more insight in growing trends in the market to stay on top of competition.