Stages of a Startup — from The Holloway Guide to Equity Compensation
The following excerpt is from The Holloway Guide to Equity Compensation, a detailed reference with hundreds of resources on stock options, RSUs, job offers, taxes, and more. You can read more from this excerpt, or access the full guide text here.
THE FULL VERSION OF THIS GUIDE ANSWERS QUESTIONS LIKE:
What is the difference between a company and a corporation?
What is the difference between Seed and Series A, B, and C funded startups?
What are the typical growth stages of a startup?
In order to understand the value of stock and equity in a startup, you need a grasp on the stages of growth a startup goes through. Each stage is largely reflective of how much funding has been raised — how much ownership, in the form of shares, has been sold for capital.
- Bootstrapped (low funding or self-funded): Founders are figuring out what to build, or they’re starting to build with their own time and resources.
- Series Seed (roughly $250K to $2 million in funding): Figuring out the product and market. The low end of this spectrum is now often called pre-seed.
- Series A ($2 to $15 million): Scaling the product and making the business model work.
- Series B (tens of millions): Scaling the business.
- Series C, D, E, et cetera (tens to hundreds of millions): Continued scaling of the business.
Keep in mind that these numbers are more typical for startups located in California. The amount raised at various stages is typically smaller for companies located outside of Silicon Valley, where what would be called a seed round may be called a Series A in, say, Houston, Denver, or Columbus, where there are fewer companies competing for investment from fewer venture firms, and costs associated with growth (including providing livable salaries) are lower.
Most startups don’t get far down the funding tunnel. According to an analysis of angel investments, by Susa Ventures general partner Leo Polovets, more than half of investments fail; one in 3 are small successes (1X to 5X returns); one in 8 are big successes (5X to 30X); and one in 20 are huge successes (30X+).
The reduction of risk and increased dilution varies as each stage progresses. For this reason, the amount of equity team members get is higher in the earlier stages (starting with founders) and increasingly lower as a company matures.
