In my first piece, I went over the very basics of venture capital. To recap, venture capital is a form of private equity in which investors provide (generally) early-stage startup companies capital or financing in exchange for equity in companies they believe have long-term growth potential. In my second piece, I outlined the mechanics and structure of venture capital funds, the legal entities and their relationship to each other, and the pros and cons of venture capital versus equity crowdfunding. In this piece, I’ll go over the startup stages of an early company’s lifecycle, what that stage entails, and more.

The Four Startup Stages

  1. Early-Stage (Before Series A)
  2. Series A
  3. Growth Stage (Post-Series A)
  4. Pre-IPO

If you’re vaguely interested in or familiar with startups, you’ve probably heard the terms “early-stage startup,” “pre-seed,” “growth,” or “Series A, B, etc.” before. The various stages of a startup’s life and funding rounds can disorient individuals unfamiliar with the startup ecosystem, so we’re here to help cut through some of the noise. 

As Gil Dibner of Angular Ventures mentions in his blog post, the source of confusion stems in part from startup founders trying to define the stage their company is at in a way that will support their fundraising efforts. On the other side, VC firms are trying to define a rational or differentiated investment strategy that conveys their strategy clearly so that they’ll see the right dealflow.

Funding rounds are intimately connected with the stage of a startup and refer to the rounds of funding startups go through to raise capital. These commonly refer to “seed,” “Series A,” “Series B,” etc… but may also include “extension rounds, “bridge rounds,” and even “debt rounds” (which is just debt financing). Startup stages and funding rounds are related in that fund rounds generally signal a startup’s life stage/phase. An early-stage startup is generally one that has yet to raise their Series A and hasn’t built the engines of growth. There are questions of product-market fit, if the company is capable of scaling, market risk, and more. These are startups that have yet to, or have raised a pre-seed, seed, seed-extension round, etc…, but have not raised their Series A. 

As Gil also mentions, and we align with his perspective here, there are really only three startup stages or phases in an early company’s life. His main qualifier for the three stages are all defined by the Series A round. I personally would add a “pre-IPO” phase and I’ll explain why further in a bit. 

The Four Startup Stages Explained

Stage 1 – Early-Stage Startups (Before Series A)

This phase includes startups that have yet to raise their Series A. These companies might have raised pre-seed, seed, or seed-extension rounds and face questions about scalability, product-market fit, and various risks (product, market, talent). The defining characteristic of this stage is that startups are not yet ready to build growth engines.

Typical Early-Stage startup metrics:

  • Revenue: $0 – $1M
  • Valuation: $1M – $10M
  • Employees: 1 – 10

Stage 2 – The Series A Stage

This stage is financed by the Series A round. As noted by Gil Dibner and Semil Shah of Lightspeed Venture Partners, the Series A round is critical. Startups must transition from having a great product to scaling predictably. The risk of scaling should be mitigated at this point. The main activity is building and de-risking the capabilities to scale and grow.

Typical Series A startup metrics:

  • Revenue: $1M – $10M
  • Valuation: $10M – $50M
  • Employees: 10 – 50

Stage 3 – Growth Stage (Post-Series A)

Any funding rounds after Series A (Series B, C, growth equity, etc.) focus on growth. At this stage, traditional VC firms, growth firms, private equity firms, and strategic investors come into play. Startups should have built effective growth engines and need more capital to expand further. This stage is about scaling successful operations.

Typical Growth Stage startup metrics:

  • Revenue: $10M – $100M+
  • Valuation: $50M – $500M+
  • Employees: 50 – 200+

Stage 4 – Pre-IPO

Although Gil doesn’t mention a “pre-IPO” phase, we believe it’s important. Companies in this stage have grown significantly but may not yet be profitable. Many, like Uber and WeWork, scale rapidly but at the cost of profitability. When traditional VC and private equity funding isn’t sufficient, companies look to go public to raise additional capital. However, they must clear paths toward profitability to attract public investors.

Typical Pre-IPO company metrics:

  • Revenue: $100M+
  • Valuation: $500M – $1B+
  • Employees: 200+

These four stages outline a startup’s lifecycle, each presenting unique challenges and attracting different types of investors.

How Does This Relate to Equity Crowdfunding?

Currently, most companies raising funds on equity crowdfunding platforms are early-stage ventures. However, some growth-stage startups, like Checkr, Winc Wine, and Miso Robotics, also raise funds online.

Early-stage startups on these platforms typically have a minimum viable product (MVP) and some traction but face challenges related to product-market fit and scalability. At KingsCrowd, we aim to reduce the ambiguity for investors interested in these companies. Check out our rating reports on NowRX and Hemster for more insights, and subscribe to KingsCrowd to stay updated on great investment opportunities.