Startup Growth Stages

An entrepreneur treads multiple stages of business lifecycle of a Startup from birth (an idea) through its maturity. Each new phase brings forth new challenges that the entrepreneur must learn to navigate. The following section presents the Startup lifecycle along with the key requirements at each stage.

Concept or idea stage: The entrepreneur discovers a problem or identifies an opportunity that has a business potential. Mentorship support for entrepreneur is critical at this stage to ensure the business related activities are defined well and subsequent business plan is generated. At this stage, there is not much requirement of funding and typically founders tend to self-finance or bootstrap.

Pre-seed or validation stage: Entrepreneur builds a probable solution in the form of “a proof of concept” or “prototype” with relevant assumptions. These assumptions are then validated with initial small sample of target audience for the product or service related feedback and response. The funding requirements are generally met by self-financing (boot strapping), raising money from investors or Government grants for research or prototype development. Access to incubator and mentors at this stage helps in identifying and approaching early customers, building minimum viable product and identifying product-market fit.

Seed or early traction stage: Based on the feedback from early customers and mentors’ insights, demand for product or service is identified. The customer retention rate confirms the early traction of the company and its product. Startup acquires more customers by actively seeking funds from crowd funding agencies, angel investors or networks, incubators and seed grants from Government. The financing support at this stage supports the Startup in escaping the “valley of death” for a period of time spanning from when a Startup firm receives an initial capital contribution to when it begins generating revenues.

Growth or scaling stage: In this stage, most of the processes are defined and the business is firmly established. Entrepreneurs build a repeatable user or customer acquisition process, identifies channels of market growth and look for opportunities to expand the business to different geographies or markets. The expansion is backed by scale up funding support from institutional investors such as Venture Capitalists (VCs) and acceleration programs.

Maturity or Exit, IPO, M&A stage: Many investors, promoters and founders look at opportunity to exit and realize profits either through partial or full sale of the business entity. The next set of investors may be identified as another entity in the same space looking to acquire the business and gain market share, or in some cases, Startup may issue a public offer or entirely sell the business. Bank funds, private equity funds and IPO investors play a major role in financing such large deals for Startups.

Government policy and regulatory framework: In India, Central and State governments are playing an active role in Startup ecosystem development. The key objectives of the Government are as follows:
 Spur entrepreneurial activity to accelerate job creation
 Create enabling environment by reducing regulatory burden and introducing new policies
 Build capacity through infrastructure creation and training
 Provide funding support and fiscal incentives
 Facilitate all members of the Startup ecosystem to collaborate and connect

Funding and finance: Investors play a pivotal role in bridging the funding needs of a Startup.They nurture, invest and mentor Startups to make measurable returns and typically remain invested with a Startup for minimum 3-4 years. Depending on the stage of a Startup, the investor types are:
 Angel: An angel investor is an affluent person or a high net worth individual who provides initial capital to the Startup at its infancy stage.
 Early stage investor: Institutional investors come in at early growth stage of a Startup when the product is ready and it has been validated. This money is used to fuel business growth.
 Late stage investor: Venture capitalists or private equity firms invest in Startups at the growth or late stage. By this time Startup has reaped some revenues and gained market traction

Mentors, advisors and support systems: Several mentor organizations and groups such as The indUS Entrepreneurs (TiE) and Bhartiya Yuva Shakti Trust (BYST) are working together to take the spirit of entrepreneurship to each district. Startup India has also created a vast pool of experienced mentors on the online hub for the benefit of Startup community.