It is extremely important you recognize the stage of any business that you are considering funding. There are four stages all businesses go through. These four stages are as follows in order of their occurrences over the life of the business.

 

1. Start Up

2. Growth

3. Maturity

4. Renewal or Rebirth or Decline

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Statistics of Business Success

In the startup phase of a business only 20% of those that begin a new business move into the growth stage. Yes that is right, 80% of all startup businesses fail for many reasons. The 20% that move into the growth phase of the business life cycle another 80% fail in this cycle for reasons that typically are management related. This means that only 4% of all business startups make it to the maturity stage.

 

Business Risk Profile Compared to Business Life Cycle

The risk profile of any business related to the business cycle is the highest at startup and decrease as the company moves through their business life cycle. Depending upon the decisions made by the management team during the growth stage into maturity stage will identify whether the business risk profile returns to a high risk stage in the final stage of the business life cycle - Renewal or Rebirth or Decline. If the company limits its investment into Research & Development of new products then in the final stage of the company it will decline and therefore create a high risk for the business success.

 

Funding Profile Compared to the Business Life Cycle

The funding cycle risks, which will be discussed in a separate post, follows the risk profile compared to business life cycle. In the earlier stages of the business life cycle the funding is at its greatest risk of being lost do to business failure. As a business moves through its stages the funding cycle risks typically decline. It is extremely important you determine the stages you will considered funding that is defined within your investment criteria.

 

Unless you are an experienced investor you should not fund across business life cycles. The risk profile defined in your investment criteria should match the risk profile within the business life cycle stages. You need to fully understand the funding and project management issues within the business life cycle you have determined as your investment criteria.