The Startup Lifecycle: Pre-Seed to IPO

To help explain the differences between startups and tech companies, we will go through a startup company’s lifecycle from “birth” to exit. Eeach stage of the life cycle will be discibed using terms from the world of venture capital, as this is how the stages are commonly referenced in the tech industry.

Let’s start with some definitions.

A startup is defined as a “ new business that intends to grow large beyond its initial founder(s)”.

The stereotypical example of a startup is where a couple of founders get together to hack on an idea, self-funding the work with their personal savings or money from friends or family. This is commonly known as the pre-seed stage of the life cycle, where the company really only exists as an idea. It doesn’t have a product or prototype, let alone any customers or users.

Money and other resources are usually in limited supply for newly founded companies, so many growth-focused startups will try to raise some initial investment from Angels (private individuals who invest in startups) or Venture Capitalists (VC) to help fund early product development. This initial round of outside funding is commonly known as the seed round, with the relatively small amount of capital from angels and VCs “watering the seed”.

If the startup takes a seed round and begins to grow quickly then they’ll usually look to raise another larger round of funding, called the Series A.

The Series A round covers the additional costs that come with growth, like hiring new staff and increasing expenditure in areas like marketing and sales.

Product/Market Fit

Product/market fit is an important concept in tech. A startup is said to have product/market fit when they have created a product that meets the needs of customers/users in a large market and as a result, are experiencing strong growth for their product. In the early stages, the growth rate could be as high as 10% per week.

Product/market fit is often associated with the stages of the startup funding life cycle: a startup is generally trying to find product/market fit during the pre-seed and seed stages, and is usually expected to have* achieved* product/market fit when they go to raise their Series A round. The Series A funding can then be used as additional fuel to help the startup grow and scale as quickly as possible.

When a startup is pre-product/market fit, their focus should be on achieving it as quickly as possible to avoid wasting their limited resources on ideas that don’t have any potential to succeed.

Early-stage startups will frequently pivot, or change their products and business models as they test different products in an attempt to find one that resonates with the market. There are hundreds of real-world examples of startups pivoting, including Instagram, which started life as the location check-in app Burbn before changing focus to photo sharing, and Twitter, which grew out of the early podcast-focused company Odeo.

Back to our startup lifecycle example.

If a startup has achieved product/market fit and continues to hit its growth targets, it will eventually begin to move from startup to scale-up mode.

Scaling a company can be a very expensive process. Many startups will not be generating enough revenue to cover these costs, so they may choose to raise additional rounds of capital: Series B, Series C, Series D and so on.

As the company continues to grow, founders and investors will eventually look to make a return on their investment. This will ideally happen via an exit (the colloquial term for a liquidity event) like an Initial Public Offering ( IPO ), where the company is listed on the stock exchange and the public are allowed to buy shares, or when the company is acquired or merges with another company.

When a company is dominating their competition and has a multi-billion dollar market cap, it’s past the point of being a startup or even a scale-up – it is a large, established technology company.

Why do company lifecycle stages matter?

Each stage within the technology company life cycle comes with advantages and disadvantages for potential employees. It isn’t inherently better to work at a company in a specific stage – it depends on your personal preferences, risk tolerance and career goals.

Before you start applying for tech jobs, ask yourself these questions:

• What kind of job do I want?
• What is my risk tolerance?
• What kind of work/life balance am I looking for?
• How much money do I need to earn?
• Is my chosen career available in small, medium and large companies?
• Am I a specialist or a generalist?
• Am I prepared to take a chance on a low odds/high reward startup “lottery ticket”?
• Do I thrive in challenging environments, or do I prefer consistency and a well-established routine?
• Am I looking to maximise my experience, income, or another area?
• Do I want to work for a well-known “brand”?
• Do I need a well-defined path of career progression within the company?

Based on your answers to these questions, you may find yourself drawn to a scrappy, early-stage startup or a market-dominating, post-IPO giant.

The following pages in this guide will outline what you can expect to find working at companies in each stage of the startup life-cycle.

Note: The descriptions on the following are examples and will not apply to every company that falls into the lifecycle stage.