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What Are the Different Stages Of A Startup?

What Are the Different Stages Of A Startup?

A typical startup journey has three stages — ideation, growth, and expansion

The average time taken by a startup to reach unicorn status was nine to ten years in the last decade. This has come down to six years in the past two years

Every stage of a startup is unique and comes with its own set of challenges. The startups that can push smartly through these challenges tend to make it big in the Indian startup ecosystem

A typical startup journey has three stages — ideation, growth, and expansion. At each stage, startups tend to perform a wide range of activities that help them grow. Every successful startup aims to minimise the time taken to advance from one stage to the other. 

Recently, we have seen this happening in the Indian startup ecosystem. There have been unicorns coming out every month in India today. In the previous decade, the typical time for a startup to become a unicorn was nine to ten years. It took 11 years for both Dream11 and Druva to hit the billion-dollar valuation. This has come down to a whopping six years in the past few years. Startups such as Swiggy and Mensa have changed the startup ecosystem by attaining unicorn status in record time. 

Various Stages Of A Startup

Early Stage

This is the beginning of the journey for a startup. The early stage of a startup can be further divided into the following mini-stages:

  • Idea Stage: This is the stage where most founders try to identify an idea that they would pursue to make it big. This is a real tricky spot as decisions made at this stage structure the path of the founders for the future. The startup ecosystem has several incubators set up across India to help founders in this stage. K-Tech Innovation Hubs, Atal Incubation Centres (AICs), and the Startup Kerala Mission are some popular examples. 
  • Pre-Seed: This is the stage where the idea identification has already happened. The founder has a good understanding of the basic structure of the startup. They have a prototype ready with a clear business plan in place. This plan details the financing requirements of the startup along with details such as a go-to-market strategy and future challenges. A crisp and concise business plan helps the investors arrive at an informed decision. 
  • Seed: Startups in the seed stage will ideally have a few paying clients. The client traction will be a positive curve This round sees investors vying for an equity share in the startup. The funds raised in this round are generally used for the launch of the product, hiring, and marketing. The startup would also start with the first level of marketing here. 

Early-stage investments typically come from friends and family, government grants, or angel investors. The size of the investment is subject to the business plan of the startup.

Growth Stage

  • Series A: Startups that have a consistent track record of revenue generation go on for Series A funding. The money raised in this round typically goes into optimising the startup in terms of technology, team, research and development of new products. 
  • Series B: At this stage, a startup would already have a concrete clientele and a sustainable revenue stream. The expenses start to fall into buckets that can be analysed and improved upon. Funds raised during this stage usually go into the deeper market study, technology, and getting specialised employees. Similar to series A, the investors here are venture capitalists who specialise in growth-stage investments in startups. 

Late Stage

  • Series C: Startups at this stage have a considerable client base in one geographical region of the world. They are looking for overseas expansion and to venture into newer markets. Funds raised in this round are typically used for the same purpose. Sometimes startups in this stage tend to acquire smaller underperforming startups in the same segment. At this stage, investments often come from hedge funds, investment banks, and private equity firms. 
  • Series D, E: Startups that show growth potential even after their series C funding tend to go in for further rounds of funding. Here the concentration is purely on acquiring newer markets through multiple methods. The startup might also look at more aggressive acquisitions of similar startups that could pose a threat. Sometimes, funds are also raised to rectify mistakes made in the earlier stages of the startup. The investments here also come in from hedge funds, investment banks, and private equity firms. 

IPO/Exit Stage

  • At this stage, the startup is ready to go public. The public is offered shares of the startup in exchange for money. The money raised here is usually for the growth of the startup to the next level and to provide an exit for the investors. As next steps,  a team of legal and SEC experts are contacted. This stage involves a  lot of work around financial data with a focus on market size and auditing the asset list and liquidity ratio. Recently, the startup ecosystem has seen new ventures working proactively in this segment.

Let’s take the example of Nykaa, an Indian startup that was launched in 2012 and went public in just ten years. Interestingly, currently, Nykaa is valued higher than legacy Indian companies such as Britannia, Marico, and Godrej Consumer at a  market cap of INR 1 Lakh Cr.

Every stage of a startup is unique in its way. Each stage comes with its own set of challenges. The startups that can push smartly through these challenges tend to make it big in the Indian startup ecosystem. The Indian ecosystem is vigorously working towards reducing the time taken for the startups to move from one stage to another. As a result, we have already seen 11 unicorns come up in 2022, taking the total tally of Indian unicorns to 97. With more unicorns on the horizon, 2022 is bound to be a blockbuster year for the Indian startup space.

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