Running a Startup might be your dream thing but sadly, dreams don’t always come through and entrepreneurs deal with this the most. Startups exist in phases. Each of these presents new challenges that impact how well the company performs, how much it grows, and how long it exists. To keep their head above the water, entrepreneurs must be able to tell what phase their startup is in and retain a good vision of where it is headed. 

How exactly does knowing the phases of a startup help anyone? Knowing what phase your startup is in will keep you aware of your progress at every point in time. This could be frustrating, especially if progress is slow. However, entire teams and organizations could attain even greater progress as they would be able to understand and celebrate their wins or improvements, and on the other hand, analyze their defeats or setbacks inspiring productivity and enthusiasm from top to bottom and across the width of the organizational structure. Entrepreneurs who understand the phase their startup is in are in a good position to review objectives and apply their resources to fit a growth or expansion they desire. In the same spirit, employees, team members, and startup partners will have a better understanding of their roles and responsibilities. They can then work to reduce waste in delivering a product or service. Bearing this in mind, let’s go on to find out what the phases of a startup are. 

The 6 Phases of a Startup

1. Pre-seed Phase

The pre-seed phase of a Startup is the earliest moment of its life. It is the point when the business or company moves from a paper plan to something more realistic. The founder’s faith in himself, his ideas, and the accuracy of his business calculations are all tested here. 

You would hear that the pre-seed phase of a startup is associated with the “family and friends round” of funding. This is because new businesses have zero visibility and absolutely no trust from the public. 

Investors are less likely to put their money into it just yet and without this crucial support, founders are left to use their personal savings or donations from family and friends to get the business up and running. Companies at this level strive to secure new customers. 

Fortunately, the investment trend is changing rapidly. As this goes on, more and more angel investors are turning to make “pre-seed funding.” This serves companies that are in their fragile phase in exchange for equity. 

2. Seed Phase

The seed phase of a startup comes after the pre-seed phase where it successfully establishes a spot in its chosen market. In this new phase, the company is no longer proving that it can fulfill a market need. Instead, it is keen on developing a workable business model. This is where angel investors typically come onto the scene. For most investors, the seed phase is the first recognizable development of any startup. 

Startups that have made it to the seed phase are entitled to a seed funding round. Since the target businesses are relatively new, investors look out for a committed team, promising products, and optimistic market data before they make their move. 

Typical seed funding lies between $500,000 and $2 million whereas the company valuation for receiving a seed funding round is between $3 million and $6 million. 

3. Early Phase

At the early phase of the Startup, founders would have put together what seems to be a result-oriented team. Their business would have served some customers and they would now be tasked with developing in-demand products and services. Venture capitals (VCs) are attracted to startups at this level but early phase companies also engage in equity crowdfunding to source for investments. 

The typical amount raised in Serie A funding rounds is between $2 million and $15 million while the valuation for startups receiving this lies between $10 million and $15 million. 

4. Growth Phase

The growth phase of a startup ushers in frequent transactions and business improvements. It is a comfortable place beyond the early phase but before the expansion phase. In the growth phase, Startups would be able to identify with a valuable product, an appreciable customer base, and a somewhat solid hold on the market. They would have revenue and they would also be able to show sales and projection data. All of this gives the founder strong grounds to solicit Serie B funding rounds from investors. 

If this quest for funding falls through (and it usually does), growth phase companies would be looking to strengthen their sales, introduce automation or at least improve their technology, ramp up their support services, and finance their team. They will do in-depth market research and can go on to hit the expansion phase. 

Series B funding rounds take place in this phase of a startup. It typically generates between $7 million and $10 million while the startup valuation reaches between $30 million and $60 million. 

5. Expansion Phase

As you would expect, the expansion phase is a highly advanced point of development in a Startup’s life. Founders who have charted their business all the way here would be set to receive a Series C funding round. This investment can be made by venture capitalists (VCs), hedge funds, banks, and private equity firms. It allows the expanding Startups to go above and beyond, for example in developing new products or entering new markets. The expansion phase of a Startup might also even involve acquiring other companies.  

The typical amount raised in a Series C funding round is a whopping $26 million. The startup itself would be valued between $100 million and $120 million. 

6. Exit Phase

Startups in the expansion phase are well evolved. They represent the major competition in their markets and they have mastered the art of promoting and delivering their products and services. Nevertheless, there is one more phase a startup could get to. This is the last phase and  it is known as the exit phase. 

The exit phase of a Startup describes a range of time beyond the expansion phase. At this point, businesses have typically made a name for themselves. They have the full trust of the public, boast of heavyweight sponsors, sport a diversified and advanced team, and also use some if not most of the latest technologies. The most amazing thing, perhaps, is that they can still receive additional investments. This new funding round usually promises attractive profits and Return on Investments (ROI) for investors. Moreover, the success of companies in this phase naturally draws investors to them. The funding is directed towards magnifying the startup’s scalability.

Another path Startup founders can tow at the exit phase is to exit from the company. The three ways this happens are by going public through an Initial Public Offering (IPO), outrightly selling the company or by merging with a similar, often larger company through Special Purpose Acquisition Companies (SPACs). Founders who want to make the most profit here sell their companies. This gives them only little control in the future. On the other hand, SPACs allow founders to have some control while IPOs provide the most flexibility. 

Startups in the exit phase take Series D and Series E funding rounds. The investment amount varies significantly as only a few companies ever make it to this phase. 

Conclusion

You might be wondering “how long is the startup phase of a business?” The answer is between 3 to 5 years. Startups are no small deal. They require a series of funding before they can blossom and grow into large companies. 

To get these investments, everything from a good and convincing strategy to actual competence and results must come into play - just as we explained above. This would happen across the different startup phases. And so, as you can imagine, knowing about each phase is the only way in which entrepreneurs can successfully prepare for the hurdles, that is if they are ever going to jump them. 

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