UNDERSTANDING STARTUP STAGES

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Written by Tochukwu Rita

Startups exist in different stages and sectors. This also applies to Investors, with only a few exceptions, who fall in the category of ‘sector and stage agnostics.’ However, it is important to understand that just as startups exist in different stages and sectors, every Investor has their individual sector and stage of interest.


Here are two scenarios that explain why having this understanding is necessary.
Scene 1:
Peter had an Edtech idea to develop an App that helps secondary school students to understand and remember Mathematical processes. The idea was so brilliant that he developed his pitch deck and submitted it to Felix, a venture capitalist interested in Early stage communication system ventures. Peter never got any feedback from Felix after waiting for close to a year. Peter lost all hope. He decided to drop the idea and return to his daily teaching job. He thought that the reason why Felix didn’t respond to his pitch was because his idea was super dumb.


Scene 2:
A former teacher in India, Byju Raveendran, developed an App where Disney characters like The Lion King’s Simba and Anna from the Frozen movie teach Math and English to students from grade one to three. The idea seemed brilliant to him. Afterwards, he sent his idea to an Edtech Investor and got funded without difficulty. Currently, Byju Raveendran is an Indian billionaire.


What’s the reason why Peter didn’t get a response from Felix?
We didn’t get to see Peter’s Pitch deck but we see two mistakes he made that are popularly made by young startup founders.

  1. Felix DOES NOT do Pre-seed investment.
  2. Felix is not interested in Education Technology Ideas. Felix is a venture capitalist in Communication System Ventures, and he is an Early stage Investor who invests in Internet, Wireless and Software sectors.

The above two scenarios explains why it is important to know what stage one’s start-up is in, as well as having the information of the stages and sectors prospective Investors are interested in. Ignorance of Investor interest has caused a misfire of pitch decks by many, leading to the indifference of some Investors to pitch decks.

UNDERSTANDING STARTUP STAGES
IDEA OR PRE-SEED STAGE
Key metrics at this stage;

  1. Only an Idea for a product or service exists.
  2. The business is not yet live and production or sales haven’t commenced.
  3. A prototype is not yet developed.
  4. The idea hasn’t been evaluated or validated yet. Businesses in the idea stage are
    considered risky because they have not been tested. Even so, there are thousands of
    investors that have interest only at this stage. The reason is, Investors make more money
    from investing in companies in the Idea stage than any other stage.

SEED STAGE
Key metrics at this stage;

  1. The first few sales have been made or the startup is currently in production mode.
  2. The business has gone live.
  3. The product has been tested and validated. This means that a customer or series of
    customers have already paid for the product or service.
  4. The business is not yet well-known in the market and the biggest reason for funding is
    needed to stay alive and gain traction.

EARLY STAGE OR SERIES A
Key metrics at this stage:

  1. Traction has been established. This means there is little market visibility. People are
    gradually becoming aware of the product. There is a reasonable record of more
    customers and repeated customers.
  2. The product has been tested, and validated. This means that the market likes and approves of it.
  3. The biggest reason for funding for this stage is to scale up by increasing size and capacity.
  4. At this stage, the calculation of ROI is considered very simple by Investors. It would be
    easily accepted that if the venture already makes $500k a month, if funded with $1m, the
    business would generate bigger profits.

SERIES B OR C
Key metrics at this stage:

  1. The business has become established. This means that they already have a large
    customer base and are experiencing great returns.
  2. Businesses in this stage don’t run around looking for funding.
  3. Investors, banks, and other financial institutions are committed to chasing after such
    ventures.
  4. The business chooses to accept funding with the singular purpose of breaking into new
    markets by creating new products or services outside its original industry category.

Traction and repeat customers are the difference between the Seed stage and the Early stage. When you finally have access to any Investor list, make sure to identify your own Startup stage and the stage each Investor is interested in before sending a pitch deck across.

Contact us today!
Let us help you shoot your shot and you can rest assured that you wouldn’t misfire your pitch
deck to the wrong Investor.

PeakPhoton offers consultancy services in related areas such as;
● Idea creation and design
● Business idea and model evaluation
● Market analysis and segmentation
● Business proposal writing
● Pitch deck and prototype development
● Product branding

Remember also that you cannot pitch thrift or hair salon business ideas to certain Investors.
If you are looking to get funds for your small businesses, PeakPhoton can also help and see
that you apply to foundations offering such opportunities to get the funding you need.
Contact us today and let’s get you started on your path to becoming a founder.

Written by Tochukwu Rita