Lesson 2 of 6 · All lessons in this module
  1. Private equity: buyouts, growth equity and PIPEs
  2. Venture capital and the corporate life cycleVideo lesson
  3. Private equity exits and risk-return
  4. Private debt: the main categoriesVideo lesson
  5. Risk and return of private debt
  6. Diversification benefits, vintage years and the risk-return ladder

Lesson 2 of 6 · 13 min

Venture capital and the corporate life cycle

Venture capital funds young, high-growth companies in stages from idea to pre-IPO; the earlier the stage, the higher the risk and the return investors demand, and convertible preferred shares protect them on the way.

In short

  • Across the corporate life cycle (seed, start-up, growth, maturity, decline), venture capital fits the early stages and buyout-style private equity the later ones; both can fit the growth stage.
  • VC stages: pre-seed (angels, founders, friends and family), seed (first stage where VC funds usually invest), early stage (before commercial sales), later stage (after sales begin, before an IPO).
  • Earlier stage = higher risk = higher required return. Valuing immature companies is highly subjective.
  • Mezzanine-stage financing is bridge money just before an IPO or sale (a timing idea); mezzanine financing means hybrid instruments such as convertibles (a method idea).
  • Convertible preferred shares align founders and investors and rank ahead of common shares in a liquidation.

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