The Successful Venture Life Cycle

Successful

ventures

frequently

follow a maturation process known as the Life Cycle. It begins in the devt stage, has various growth stages, until it reaches a maturity stage

5 Life Cycle Stages:

Development Stage Startup Stage Survival Stage Rapid-growth Stage Early-maturity Stage

VENTURE LIFE CYCLE

Stages of a successful ventures life

from devt thru various stages of

revenues growth

EARLY-STAGE VENTURES

New or very young firms with little

operating history
Either in development, startup or

survival life cycle stages

SEASONED FIRMS

Firms with successful operating

histories and operating in their rapid

growth or maturity life cycle stages

The 5 basic stages

in a successful
business venturess life cycle over an illustrated time period, ranging from 1.5 yrs before startup to about 6

yrs after startup.

A successful ventures life cycle is often expressed graphically in terms of the ventures revenues
Ideas may take less or more time to develop, and the various operating life cycle stages
for a particular venture may be shorter or longer depending on the product or service being sold

Typical ventures :
Operating losses usually occur during the startup and survival stages Profits begin and grow during the rapid growth stage Free cash flows lag operatingprofits due to heavy investment in assets required during the first part of rapid-growth stage Most ventures burn more cash than they build in the early stages of their life cycles. They start producing positive cash flows in the latter part of their rapid-growth stages and during maturity stage

DEVELOPMENTAL STAGE

Developmental Stage
Period an idea progress into a promising business opportunity. Most new ventures begin with an idea for a potential product, service or process.
Feasibility of an idea is tried in this stage Comments and initial reactions forms an initial test if the idea is worth pursuing Reaction and interest level of trusted business professionals forms the additional feedback Sufficient excitement in early conversations encourage an entrepreneur take the next step: producing prototypes, delivering trial services or implementing trial processes

Here, the developmental stage is during the -1.5 to -0.5 years prior to market entry

IMPORTANT: Time to market is often a critical factor. Example: A new electronic commerce idea may move from inception to startup in a matter of weeks or months. Other business models, more time may be spent in the devt stage

STARTUP STAGE

STARTUP STAGE
Period when the venture is organized
and developed and an initial revenue

model is put in place

In some instances, acquiring necessary resources is less than a year. Example: Simple production & delivery process requiring less physical & intellectual capital may progress from initial idea to actual startup in a year or less

Revenues are typically generated during Zero Time or when the venture starts operating & selling its first products and services

SURVIVAL STAGE

SURVIVAL STAGE
Period when revenues start to grow and help pay some, but typically not all, of the expenses. The gap is solved via borrowings or selling shares (or allowing others to become part owners of the venture)

Different ventures experience different timing

REMINDER:

Lenders & investors provide financing only if they expect the ventures cash flow from operations be large enough to repay them plus some profit
Financial impression by outsiders starts to become a serious concern Formal financial statements and planning begin to have useful external purposes

RAPID-GROWTH STAGE

Period of very rapid revenue and cash flow. Cash inflows grow more quickly than cash outflows,resulting to large appreciation on the ventures value

Those who hurdled the survival stage often gains market shares taken from less successful competitors still struggling thru the survival stage

Continued industry revenue & increased market share combine to push a venture into lucrative financial future Value increase rapidly, revenues rise more quickly than expenses The benefits of economies of scale in production & distribution

EARLY MATURITY STAGE

Growth of revenue and cash flow

continues but at a
much slower pace than the rapid-

growth stage

- Value continue modest increase because most of

ventures value has already been created and

recognized in the previous stage

- This stage often coincides with decisions by the entrepreneur and other investors to exit the venture through a sale or merger

 This hypothetical venture lifespan is what it took successful ventures to progress through devt into maturity. Technology, however, has shortened the lifespan of many products. This product ideas usually moved into viable business in a year or less

For rapidly deployed ventures, the toughest part of survival stage may be the first few months of operation. During the initial year, rapid growth may occur; mature-firm financing issues may arise even before they traditionally occur. This rapid maturity, in addition to being a challenge in itself, represents tremendous challenges to the entrepreneurial team members. They must deploy a variety of financial skills

FINANCING THROUGH THE VENTURE LIFE CYCLE

FINANCING THROUGH THE VENTURE LIFE CYCLE

Early-stage ventures are often in need of additional capitalization at the start
Entrepreneur is thusrequired to understand, and should attempt to tap, various sources of financial capital as the venture progress

Once it achieves a successful operating history, it becomes a seasoned firm. New sources of financial capital become attainable

VENTURE FINANCING
LIFE CYCLE STAGE Development Stage Startup Stage TYPES OF FINANCING Seed Financing Startup Financing Entrepreneurs assets Families and friends Business angels Venture capitalists Survival Stage First Round Financing Business Operations Venture Capitalists Suppliers and customers Govt assistance programs Commercial banks Business operations Suppliers and customers Commercial banks Investment bankers MAJOR SOURCES/PLAYERS Entrepreneurs assets Families and friends

Rapid Growth Stage

Second Round Financing Mezzamine Financing Liquidity financing

SEASONED FINANCING
1. SEASONED FINANCING LIFE CYCLE STAGE Early Maturity Stage TYPES OF FINANCING Obtaining bank loans Issuing stocks & bonds MAJOR SOURCES/PLAYERS Business operations Commercial banks Investment bankers