Early Stage Finance

Early Stage Finance - Sensoji Pagoda in Asakusa, Tokyo, Japan
Early Stage Finance

Early stage finance encompasses any financing transaction or support operation (not exclusively financial) undertaken to benefit companies in the seed and start-up phases.

At a global level, early stage financing is considered a key to innovation. However, it must also be stressed that several problems arise in implementing solutions.

Specifically, financial players are unanimous in asserting that early stage projects are usually too expensive to investigate and too risky. At the same time, entrepreneurs in general are badly trained to appreciate the teamwork and leadership as well as sales competence required.

Corporate development can be summarized in four phases:
  • Preparation—excogitating a business idea, running feasibility studies, presenting the idea to the team of “colleagues”
  • Start-up—creating the company, team building, setting up production activities, marketing, selling
  • Growth—defining the organizational structure of the company, creating various supply/sales channels, growing the team, internationalizing, penetrating new markets
  • Exit—liquidating partially or totally the work of the original promoters

Again, ideally speaking, various financial needs may be associated with these phases;
specifically, early stage financing addresses two of them:
  • Preparation—pre-seed or seed. Normally the financial needs that arise here are negligible. In fact, the promoters of the initiative are the ones who take on these expenses personally, or in some instances together with their families or friends. In recent years, an increase in specialized public funds for this kind of venture has been seen, along with the appearance of specialized financial intermediaries, often “spin-offs” of venture capitalists attracted by the chance to finance these companies/ projects during later phases.
  • Start-up—development financing. Here more substantial capital is required which is invested directly in the company’s operations. In this phase, in addition to financial requirements, the need for competencies and skills must also be satisfied which help the entrepreneurial initiative along its development path.