"Venture capital firms, finance both early and later stage investments to maintain a balance between risk and profitability." Explain early stage financing.

Early Stages Financing Seed Capital and R & D Projects: Venture capitalists are more often interested in providing seed finance i.e., making provision of very small amounts for finance needed to commence a business. Research and Development activities are required to be undertaken before a product is to be launched. External finance is often required by the entrepreneur during the development of the product. The financial risk increases progressively as the research phase moves into the development phase, where a sample of the product is tested before it is finally commercialized. Venture capitalists/firms/funds are always ready to undertake risks and make investments in such R & D projects promising higher returns in future. Start Ups: The riskiest aspect of venture capital is the launch of a new business after the Research and Development activities are over. At this stage, the entrepreneur and his products or services are still not tried and tested keeping in view the various market forces. The finance required usually falls short of his own resources. Start-ups may include new industries / businesses set up by the experienced persons in the area in which they have knowledge, specialization and proficiency. Others may result from the research bodies or large corporations, where a venture capitalist joins with an industrially experienced or corporate partner. Second Round Financing: It refers to the stage when product has already been launched in the market but has not earned enough profits to attract new investors. Additional funds are needed at this stage to meet the growing needs of business. Venture Capital Institutions provide larger funds at this stage than at other early stage financing in the form of debt. The time scale of investment is usually three to seven years.