What Entrepreneurs Need to Know About Late-Stage Venture-Capital Investors If you're looking to scale up one day, it will pay to know now about how late-stage investing works.

Venture funding of early-stage companies struggled significantly in the first half of 2011, falling 48 percent in terms of number of closings and capital committed. But late-stage funds had their strongest first half since 2007, according to Dow Jones LP Source.

Investors like Todd C. Chaffee, general partner at Institutional Venture Partners, a Menlo Park, Calif., venture firm, are bypassing hot, young startups for more mature companies. With investments that include Twitter, Zynga and LivingSocial, his firm has an eye for successful digital brands. Here, Chaffee weighs in on what businesses need to know about working with late-stage investors.

Why the strength in late-stage investing now?
In a word, it's probably returns. We've been seeing some high-profile IPOs and late-stage firms with favorable returns, so people are chasing the market. It's easier to spot the later-stage companies that are growing well, so they tend to attract more capital. It's low-risk capital, and you get a faster return. We look for a minimum of three to five times return on investment in three to five years.