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Average Value by Alternative Funding Types in Europe 2014-2016

Alternative funding is a term that embraces a variety of funding sources that have grown beyond traditional funding channels, diversifying funding opportunities for SMEs. Alternative funding would also include financial instruments, such as leverage funds or venture capital funds, securitization or even venture capital. Alternative funding differs from traditional forms of debt financing in that it is given to SMEs by investors rather than by banks. Direct money collection instruments are used by capital market investors such as corporate bonds and indirect instruments such as securitized debt and covered bonds.

From the point of view of the development stage of an enterprise, the following stages of development can be identified which require the following specific funding mechanisms:

  • Pre-seed - fundraising ideas and research projects, with the goal of building a trading company around it later;

  • Seed - funding provided to research, evaluation and development of the initial concept, before a business has reached the startup stage

  • Early stage and startup - company financing for product development and initial marketing. Companies may be in the process of being established or may have been active for a short period of time, but the developed product has not yet been marketed;

  • Expansion - Investments aimed at reaching the level of industrial production, modernization of production facilities and attracting new employees;

  • Buy-out and recovery - the liquidation phase or the corporate renewal phase;

  • Pre-IPO - Funding is granted for a company to be listed publicly within six months to one year. Funds are often used to finance different requirements before making a public offer or other major restructuring event.

Source: "From the crisis of the financial - banking system to the European capital market union", Editura Economica 2017, Daniel Ioan Dumitrescu & Diana Valentina Dumitrescu