Early stage investors are people and companies who provide start-up businesses funding for their projects, typically when these projects are just beginning and are still in the market research or development stages. Early stage Investors typically provide something called ‘seed capital’ which provides new businesses with enough capital to get off the ground and to the point that they are either self sufficient and profitable, or are in the position where they have proven their business concept and are at the stage where they require additional funding to move the project or business on further.
Typically entrepreneurs will require an early stage investor to provide seed capital for their new business because they need to either carry out market research to see if the business project is viable, require money for proof of concept to ensure that the product will actually work as believed, or entrepreneurs will require investment for product design which is typically an expensive process. Therefore early stage investors are speculative investors who provide funding to businesses that are still a long way off from starting.
When a business requires an early stage investor to help get a project off the ground, typically that investor will require a large stake in the company or will require a large return on their initial investment. Whilst this may seem unfair it is important to understand that early investment can be quite a risky investment as many businesses do not get further than the proof of concept stage, meaning investors will loose all their money. Therefore it is understandable that investors need to both see a strong business plan for the new business and also get a good return on their investment.