The Lifecycle of a Billion Dollar Startup

From the largest enterprises with decades or centuries of experience to the smallest startups, no company follows the same path to success.

However, these days many startup companies undergo a similar life cycle before becoming a unicorn. Startups generally go through common development stages that coincide with capital funding rounds from venture capital firms and other investors.

Initial investment rounds

Pre-Seed

The first stage in the founding of any startup is generating capital needed for initial business expenses and the costs associated with starting a company.

Typically, the company does not yet have a product on the market. Instead, the company is based on an idea or early prototype.

?This stage of raising capital is known as the pre-seed round, sometimes called the "friends and family" round. Funding may also derive from a startup accelerator, which is an organization focused on funding groups of early stage startups.?

The most famous of these is Y Combinator, whose alumni include AirBnb, Stripe, Dropbox, Doordash, Coinbase and Zapier.

Seed

The first official state of equity funding is called seed funding. This represents the initial investment into a business or company.

Like pre-seed funding, this round may also involve “bootstrapping”, or raising money from friends and family. “Angel investors” are also a common target to provide initial capital investments.

The main goals of a seed round are product development and market research to attract users. These steps will enable a startup to develop a viable product that generates revenue.

?One major milestone achieved from a seed round is establishing a “founding team”. These company leaders possess essential skill sets critical to the startup’s long term success.?

Venture Capital Funding Rounds

The next steps are going through Series A, B, C, D etc. funding rounds. During these stages, venture capital firms provide funding to expand business operations.

Startups go through new valuations at each stage. Investors typically gain partial ownership through shares of company stock from each funding round.

Series A

Series A funding is the first funding round after the initial seed or pre-seed funding rounds.?

The stakes are higher and the probability of success is lower for companies moving from seed funding to Series A.

For instance, fewer than 10% of companies with seed funding get Series A funding, and the median Series A funding in 2021 was $10 million.

At this stage, companies should have a viable product. The purpose of raising Series A capital is to focus on monetization and long term profitability.

Angel investors may invest in Series A rounds, but funding is also provided from traditional venture capital firms.

?Series B

The next stage in the development cycle is a Series B funding round, which typically occurs between the second and third year of a company’s growth.

In a series B round, funding is often provided by a key ‘lead investor’, which is also common in Series A rounds. Companies focus on expanding their existing market reach with the capital raised from this round.

Series C

Companies that flourish after Series B often undergo a Series C funding round. A common goal at this stage is expansion into new markets, such as preparing for international business expansion.

?Startups at this stage demonstrate a proven business model with an established revenue model and customer base. On average, this funding round occurs between a startup’s first three to five years.

For some startups, Series C funding rounds are the last step before an IPO. Funding may come from private equity firms, hedge funds, or investment banks.?

The capital raised in Series C is significant, often into the hundreds of millions of dollars.

Series D & E

Companies that proceed with seeking an additional Series D & E funding round are usually in a “hypergrowth” stage. Like Series C, the company has a clear business strategy and revenue model, and are competing for as much market share as possible.?

The goal of Series D is to maximize a company’s valuation prior to IPO. Many startups will hit their unicorn status during this stage as they cross the billion dollar valuation phase.

IPO: Exit for Unicorns

Achieving an initial public offering, or IPO, is the end goal for many startups. This step marks the transition for a startup between being a privately held company and a publicly held company.

During an IPO, company shares become available on public trading markets, and the company becomes fiscally responsible to public shareholders.

It’s common for unicorn startups to partner with a special purpose vehicle (SPV) prior to an IPO. These entities help increase the company’s valuation before going public.

?Startups undergo a constant cycle of growth, investment rounds, product development and adapting to the market before IPO.?

While the journey from a startup’s initial conception to its eventual public offering can take many years, the end result can be extremely lucrative for founders and investors alike.

Where Venley Capital Enters the Lifecycle

At Venley Capital we usually only enter into an agreement with a company that is between their Series C and Series E funding rounds. This ensures that the companies have shown a consistent track record of performance and have a clear plan for growth and monetization.

We allow early stage employees to extract some of their value prior to an IPO, and give our clients an exclusive opportunity to invest in private companies during their hyper growth phase.