7 startup stages of growth (with common forms of funding)

By Indeed Editorial Team

Published 6 July 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

The startup growth stages are a guide for new businesses, from starting as an idea to potentially becoming a large and profitable company. Each stage allows entrepreneurs to focus on a different component to help develop a new business. Learning about the process startups go through can help you when considering joining or opening one. In this article, we explain what are the startup stages of growth, list the key stages that most startups go through and share tips on reaching startup success.

What are the startup stages of growth?

Startup stages of growth are phases through which a startup goes to achieve success. Although startups can have different growth stages depending on their organisational focus, the first stage usually begins when founders define their idea for a business. Later stages are individual steps that entrepreneurs take to build their companies and gain market or customer acceptance. In many instances, the growth of a startup ends when its products become popular on the market, as that's when many companies transform or founders decide to sell them.

Related: The pros and cons of working at a startup

Key startup growth stages

As entrepreneurs work on growing their startup businesses, their companies usually go through several stages of growth. Here are the key stages to consider when thinking about any startup's position within the market:

1. Pre-seed stage

In the pre-seed stage, founders define their business idea and prepare for pitching it to potential investors. Because most founders approach this step with little or no capital and they don't have any performance data yet, it's necessary that they focus on presenting the strength of their idea. It's essential that they clearly explain what significant issues that exist within the market their business can solve. Another factor that many investors care about is the founding team, as they want to know if the founders know how to make good decisions that can drive success for a startup.

Related: 3 elevator pitch examples (plus how to structure your pitch)

2. Seed stage

Once founders secure funding for their business idea, the seed stage begins. During this phase, they engage in market testing and product development to create prototypes and validate the business model that they chose. An effective thing to do at this moment is to identify the final methodology that the startup would follow. In some cases, entrepreneurs use their own funding to support these activities. After presenting the prototypes, investors then finalise their decision to officially fund the business.

3. Early stage

The early stage is when the company launches. What's important to note is that the product or service that the startup launches during this phase are not the final product or service but a minimum viable product (MVP). The MVP is a version of a product that has just enough features to be usable by early customers. It serves as a testing tool to monitor and measure early consumer reactions. This is an important step to take for startups, as it allows them to eliminate production waste and simplify the development chain before working on the final version of a product.

4. Growth stage

The growth stage begins when the company is experiencing strong market demand, which means it has a consistent customer base and a steady source of income. The company continues growing its capital and maximising potential, which often requires that the executives start recruiting more employees to help them manage the workload. It's a stage during which the company might experience a lot of organisational risks because it's necessary that leaders expand their management activities to take care of both recruiting and scaling at the same time.

Although during this stage the company usually begins making a lot in profit, it's crucial to continuously monitor funding sources and carefully redistribute funds. If a company you're working for is currently in its growth stage, you may notice the increasing impact of venture capital in making financial and strategic decisions. Sometimes, it's even possible to observe the bigger importance of private equity, as many private institutions choose to invest in private companies that are showing high-growth potential.

Related: What is a venture capitalist? (With roles and examples)

5. Expansion stage

In the expansion stage, the company usually is in a position to use its proven marketing and business model to consider more ambitious goals. For example, this could involve entering new markets, expanding internationally or hiring better-qualified executives to control its operations. Most commonly, to be able to reach this stage, it's necessary for a startup to grow at an annual rate of over 20% for at least three years. Factors that companies consider when measuring this growth include turnover, number of employees or both.

6. Maturity stage

After a business successfully goes through the expansion stage, it matures. The maturity stage is when the initial founder may decide to be less involved in the company's operations and appoint a fully independent management team to take over. Typically, businesses that reach this stage have maintained a strong position on the market for some time, and other companies begin treating them as market leaders or innovators.

7. Merger and acquisition stage

The last phase in a startup's life cycle is the merger and acquisition stage, also known as the exit stage. It occurs when another company decides to buy the startup to gain rights to its products, patents or processes. In this scenario, the initial founder exits the company and is no longer a member of the executive team. Another possible scenario that allows them to stay with the company is to merge it with another business to increase shareholder value.

At this point, many companies decide to go public. This means that they go through the initial public offering (IPO) process, which is a transition from private to public ownership. After a successful IPO, companies can begin selling their shares to public investors.

Related: IPO definition (plus advantages, disadvantages and FAQs)

Common forms of funding for startups

It's necessary for every founder of a startup to determine how they want to fund their business idea. Here are some of the most common ways in which entrepreneurs choose to fund their companies:

  • Bootstrapping: Bootstrapping is when an entrepreneur starts building a startup with little or no capital, for example, using their own savings. This method requires that they solely rely on money that is not from an outside investment.

  • Family and friends: Many entrepreneurs ask their family and friends for money that they can use to fund their business ideas. In this scenario, family members or friends become company investors.

  • Venture capitalists: Venture capital is a type of private equity that can act as financing that private investors offer startups in exchange for an equity stake. To invest in a small business or a startup, it's usually necessary that the venture capitalist sees the growth potential in the business idea that the startup founder presents to them.

  • Angel investors: Angel investors, also known as private or seed investors, are usually high-net-worth people who use their own money to invest in a business idea of an aspiring entrepreneur in exchange for shares in their startup. Typically, they make money by exiting the company once it reaches the maturity stage.

  • Business loans: Another common way of financing a startup is through taking a business loan. Although this can be more challenging, presenting a bank or financial institution with a reasonable and promising business plan can help entrepreneurs secure startup business loans.

  • Crowdfunding: Crowdfunding allows entrepreneurs to raise capital from their network of potential consumers. In this scenario, many people invest small sums just to show that they're interested in using a certain product.

Additional tips for startup success

If you're an aspiring entrepreneur or you're considering joining a startup, it's important that you prepare for pushing the company through the different stages of startup growth, from ideation to maturity. Here are some additional tips that can accompany you throughout this journey:

  • Be passionate: Many investors, especially angel investors, prefer investing in ideas that passionate and dedicated entrepreneurs present to them. By showing that you're passionate about a business idea, you demonstrate that you have what it takes to find innovative solutions that the company may encounter along the way to success.

  • Concentrate on the customers: The main goal of a startup is to serve customers in providing a solution to a specific problem they have. Carefully listening to their feedback and understanding their requirements can help you launch more effective products that people want to buy.

  • Test your offering: Remember to test your products or services before launching them on a large scale. This way, you can see what works best for certain audiences before investing a lot of money.

Explore more articles