Most important startup stages

startup stages, startup phases, startup investment, know how

Overview

What to look for at what stage?

Pre-Seed

The pre-seed stage describes the period before the foundation (Idea Stage). In this phase no functional MVP / Early Release exists yet and in product development the focus is on product and service development. In this phase startups start their first Customer Validation - Can the business idea exist in theory? The capital requirement for early product development and start-up preparations is rather low. In the case of research-intensive technologies, however, the expenses can be very high and the start-up usually does not generate any revenues in this phase.

The typical ticket size of investments ranges between 0k - 100k. Valuations in this phase go up to 1.5M. From a start-up perspective, no more than 10% of shares should be sold in this phase. 

Idea & business plan, but above all founder team serve as basis for the calculation of the evaluation - the models used for the calculation of the evaluation are exclusively in the subjective range (Simple Stage Valuation, Bill Payne, Berkus, etc..). For investors, what counts above all is "Do we believe that the founders can develop a successful product/service?

→ Put the Founders in the center of your evaluation


Seed Stage

The Seed Stage is characterized by optimization of the business and operating model (especially sales), as well as development of processes and organizational structures. In this phase a functional MVP / Early Release already exists and in product development the focus is on further development and adaptation of the products and services. Although a functioning product already exists, the actual market validation begins in this phase ("Does the target group need the product?") - and thus the transformation of the business idea into a business concept supported by market and customer analysis. This phase also includes production planning and preparation, decisions between in-house and external production or between sales cooperations and the establishment of an own sales network. In this phase, the startup already generates its first revenues - often through proof-of-concept projects (POCs) and, later on, first recurring revenues (Monthly Recurring Revenue - MRR).  

The typical ticket size of investments ranges between 100k - 2 million. Valuation in this phase range from 1.5M - 3M, with a current development in the DACH region towards the upper limit and also some outliers far above. From a startup perspective, no more than 25% of the shares should be sold in this phase, but from an investor perspective a minimum of 15% should be demanded, in reality one should settle somewhere in between, depending on negotiating strength, external circumstances, attractiveness of the market, success to date and experience of the founding team, etc... 

The first financial figures (turnover, MRR) serve as the basis for the calculation of the valuation, but above all the market and founder team - the models used for the calculation of the valuation tend to be more subjective (Bill Payne, Berkus, Scorecard, Risk Summation, etc..). For investors, the decisive criteria are the market and above all the founding team: "Do we believe that the team can successfully place the product in the market?

→ Put the team in the center of your evaluation


Growth Stage

The Growth Stage is characterized by the first scaling of the business model to new markets, the establishment and expansion of sales, as well as the finalization of the processes and structures essential for future growth. The product / service is mature. For successful business development, rapid market penetration must be achieved. Despite rapidly increasing sales (Monthly Recurring Revenue - MRR), the company is usually not yet in the profit zone at the beginning. This only happens with the expansion of the sales system and production. 

The typical ticket size of investments is between 100k - 2 million, with the majority of deals in the 250k - 750k range. Valuation in this phase range from 3M - 7M, with a current development in the DACH region towards the upper limit and also some outliers far above. From a startup perspective, no more than 25% of the shares should be sold in this phase, but from an investor perspective a minimum of 15% should be demanded, in reality one should settle somewhere in between, depending on negotiating strength, external circumstances, attractiveness of the market, success to date and experience of the founding team, etc... 

The basis for calculating the valuation is the financial figures (turnover, cash flow, MRR) and their growth in the relevant periods, the scaling strategy & the broader team - the models used to calculate the valuation are a mixture of subjective assessment and objective valuation standards (Growth Forecasts, Exit-Driven, Berkus, Scorecard, etc..). For investors, the key criteria are team (founders and sales), growth, revenue, new markets: "Do we believe the team can successfully scale the product to new markets? 

→ Put the traction in the center of your evaluation


Later Stage

Later Stages (Series A - Z) are characterized by rapid international growth, sales growth, as well as reorganization, restructuring or further diversification into new products or services. Rapidly rising sales (Monthly Recurring Revenue - MRR) help the company to break even. Further competitors enter the market and the expansion of the distribution system (international) is usually followed by diversification. In this phase a possible IPO is also being prepared.

The typical ticket size of investments ranges between 2 million - 100M (depending on the series). Valuation in this phase starts at 7 million, with a current development in the DACH region towards the upper limit and also some outliers far above ("Unicorns"). From a start-up perspective, no more than 30-50% of the shares should be sold in this phase. 

The financial figures (turnover, cash flow, MRR) and their growth in the relevant periods as well as the broader team serve as the basis for the calculation of the valuation - the models used for the calculation of the valuation are a mixture of subjective assessment and objective valuation standards (growth forecasts, exit-driven, etc..). For investors, the decisive criteria are team (especially founder - to - CEO change), processes and international organizational structures, establishment of sales units, growth, sales: "Do we believe that the team can lead the product and the company internationally to long-term success? 

→ Put revenue and unit economics (Later series) in the center of your evaluation