Defining the First
Six Stages of a Business in the
Venture Capital World
Enterprise has no product revenue to date and limited expense history, and typically
an incomplete management team with an idea, plan, and possibly some initial product
development. Typically, seed capital or first-round financing is provided during
this stage by friends and family, angels, or venture capital firms focusing on early-stage
enterprises, and the securities issues to those investors are occassionally in the
form of common stock but are more commonly in the form of preferred stock.
Enterprise has no product revenue but substantive expense history, as product development
is under way and business challenges are thoguht to be understood. Typically, a
second or third round of financing occurs during this stage. Typical investors are
venture capital firms, which may provide additional mangement or board of directors
expertise. The typical securities issued to those investors are in the form of preferred
Enterprise has made significant progress in product development; key development
milestones have been met (for example, hiring of a management team); and development
is near completion (for example, alpha and beta testing), but generally there is
no product revenue. Typically, later rounds of financing occur during this stage.
Typical investors are venture capital firms and strategic business partners. The
typical securities issued to those investors are in the form of preferred stock.
Enterprise has met additional key development milestones (for example, first customer
orders, first revenue shipments) and has some product revenue, but is still operating
at a loss. Typically, mezzanine rounds of financing occur during this stage. Also,
it is frequently in this stage that discussions would start with investment banks
for an IPO.
Enterprise has product revenue and has recently achieved breakthrough measures of
financial success such as operating profitability or breakeven or positive cash
flows. A liquidity event of some sort, such as an IPO or a sale of hte enterprise,
could occur in this stage. The form of securities issued is typically all common
stock, with any outstanding preferred converting to common upon an IPO (and perhaps
also upon other liquidity events).
Enterprise has an established financial history of profitable operations or generation
of positive cash flows. An IPO could also occur during this stage.