Stages of a startup

This article will explain what the different stages of a startup are and what happens.

While I was transcribing the founder interviews for Rbbl, I passively learnt a few terms that are used in the business world but I never fully understood what they meant. I have since learnt what these are and this article will explain what the six stages of a startup are and what happens in each.

Pre-seed stage

The pre-seed stage is where you find a problem in the market you want your business to help with. If it is a useful addition, this will help your business grow.

You should listen to potential customers to see what their current issues are and listen to their comments to analyse your idea.

There is no funding at this stage as there is no product itself, only your initial ideas behind a startup.

Seed stage

The seed phase is when the business model is validated and important business decisions are made. You will develop a prototype of your product to validate the original idea behind the startup. This does not need to be functional or viable and it may take numerous attempts to find an appropriate product for your startup.

A hypothesis should be proposed and then confirmed or rejected after you have decided what criteria is satisfactory.

Funding at this stage will come from yourself (bootstrapping) or friends and family.

Early stage

This is the stage where your idea begins to evolve. This is the best time to start testing your product to see if it can go to market but this will not be the final product – only a minimum viable product – and the tests will be less complex.

Funding at this stage will come from angel investors, crowdfunding or from friends and family.

Growth stage

This phase is when there is an upward trend of new and recurring customers and billing. Profitability of your startup is important as this is when the team can grow and recruitment starts.

Funding at this stage is also important because it will cover necessary changes or help a business progress to the next stage. Venture capitals and corporate venture capitals are the ways of receiving capital at this stage. The amount of capital given by a venture capitalist depends on the size of the company.

Expansion phase

The expansion phase is when a startup can be called a scaleup as it has grown at an annual rate of 20% for the previous three years. A scaleup has a proven business model and this allows it to think about having more ambitious business goals.

Companies who have already proceeded with the execution of the business model will move forward and have more revenue and employees.

Exit phase

The exit phase is not compulsory for a startup but it can happen so I will tell you about it.

The exit phase of a startup is when a startup either:

  • Wants to attract additional investment for growth
  • Wants to sell the business and not manage it anymore

The founders’ shares could be sold to another company or an Initial Public Offering (IPO)

A founder may also close the business if the business is not valuable enough.

Events about Funding can be found here and about Growth can be found here.