Definition of the Stages of Business Development
Different sources of finance are generally considered to be more appropriate at different stages of business or product development.
Innovation is sometimes characterised as a journey from research to commercialisation - or 'concept to cash'. Along this chain the business moves from being a net consumer of cash to a net generator, with the realisation of revenues. However, almost all new businesses cost more to build than they can generate in immediate customer revenues and access to finance is essential to underwrite the early stage of 'cash burn' and growth.
A simplified linear model of the journey is shown below together with the typical types of funding that can be accessed at each stage. This is equally applicable to new businesses focusing on a single innovation or mature business developing new products.
Recognising that progress along the journey is rarely linear (businesses may jump a step or return to a previous stage when problems are encountered) it is useful to understand the stage for which finance is being sought. This ensures that time and effort is expended seeking and targeting the right source of finance.
Business Development and Appropriate Funding Sources
| Business Stage | Applied Research |
Demonstration |
Pre-Commercial |
Early Markets |
Growth Markets |
| Activities |
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| Type of finance | 'Soft' funding | 'Soft' funding Equity finance |
Equity finance | Equity finance Debt finance |
Equity finance Debt finance |
| Typical source of funding | Grants R&D tax credits (Friends & Family) |
Grants Angel investors Seed funds |
Angel investors Seed funds Venture capital Corporate investors |
Venture capital Corporate investors Loans |
Venture capital Loans |
| Typical sum raised | Less than £200k | £200k-£1m | £1-3m | £3-5m | £5m+ |
| Years to exit | 8-10 years | 5-7 years | 3-5 years | 2-3 years | Less than 2 years |