Once a firm attracts customers and establishes a presence in

Once a firm attracts customers and establishes a presence in the market, its funding needs increase to support expansion. Which phase is this?

Question 4 options:

Start-up

Expansion

High growth

Mature

Solution

Answer is Expansion

Expansion phase - over here, funding needs increase. Owners generally look to venture capitalist or private equity firms in this stage. In this stage, business has successfully attracted few customers and is establishing a presence in market

In start up phase, there is a restriction on the type of financing that is available for the business. The only sources of financing are own equity or bank debt (which is attached to higher interest rate, given higher risk of default). Moreover, since they do not have any track-record, VC funding might not be available for them.

High Growth - This phase generally requires huge funding and company would tap the public equity markets.

Mature stage - This firm typically prefers using internal financing girst and then can tap any external financing ways like debt, equity, etc.