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Stages of Startup
- Startup Bell
- May 22
- 12 min read
In the summer of 2008, two roommates in San Francisco couldn't afford their rent. Rather than panic, they inflated three air mattresses in their living room and created a simple website offering short-term lodging and breakfast. That makeshift solution—literally "Air Bed and Breakfast"—would evolve into Airbnb, a company valued at over $75 billion today.
Every successful startup has a similar origin story—a journey from humble beginnings through distinct stages of growth, each with its own set of challenges, milestones, and potential pitfalls. Understanding these stages isn't merely academic; it's the roadmap that founders, investors, and employees alike use to navigate the treacherous waters of building a company from scratch.
Let's embark on a journey through the lifecycle of a startup, examining each stage (which often correspond to fundraising rounds) in detail and uncovering the secrets of companies that successfully progressed from fledgling ideas to household names.
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The Pre-Seed Stage: Ideation & Validation
This is the whiteboard era: you, a co-founder or two, and a head full of possibilities. You’re testing whether your “big idea” holds water. It’s a time of endless pivot potentials, zero-to-one prototypes, and frantic note-taking from your handful of early interviews. The energy is intoxicating—but without disciplined validation, most teams stall here.
Characteristics
Focus is on research, talking to potential users, and validating the problem-solution fit.
Minimal or no external funding beyond personal savings.
Product is usually a prototype or even just an idea.
Time Spent
The average pre-seed stage lasts 6-12 months, though this varies widely by industry.
Failure Rate
Approximately 70% to 90% of startups fail at this earliest stage. Why? Often because founders fall in love with their solutions before confirming that the problem is significant enough for customers to pay for a fix.
How to Avoid Failure
Conduct at least 100 customer interviews to validate your problem.
Build a minimum viable product (MVP) that addresses just the core problem.
Get early adopters using your solution and providing feedback.
Be prepared to pivot based on market feedback.
Successful pre-seed startups like Dropbox take a different approach. Before writing a single line of code, founder Drew Houston created a simple explainer video demonstrating how his file-sharing service would work. The video generated 70,000 sign-ups from people eager to use the product when it launched—validation that guided the actual product development.
How to Graduate
The transition from pre-seed to seed typically happens when founders can demonstrate:
A working prototype or MVP with early user adoption.
Initial traction metrics (user growth, engagement, etc.).
A compelling vision and roadmap for growth.
Examples: Before They Were Famous
Uber: Before becoming a transportation giant, Uber was simply "UberCab," a basic app connecting iPhone users with black car services in San Francisco. Co-founders Travis Kalanick and Garrett Camp spent nearly a year testing their concept with just three cars in New York City.
Shopify: Before becoming an e-commerce platform, Shopify was actually an online snowboard equipment store called Snowdevil. Founders Tobias Lütke and Scott Lake created their own e-commerce software when dissatisfied with existing options. When other merchants began asking to use their software, they pivoted to become the platform we know today.
The Seed Stage: MVP & Initial Traction
You’ve validated the core problem and built a bare-bones MVP. Now comes the grind of acquiring paying customers. You’ll hire your first engineers or designers, set up analytics, and chase that elusive product-market fit. It’s a period of rapid iteration—feedback today shapes your roadmap tomorrow.
Characteristics
Launching the MVP to early adopters, running beta pilots.
First formal funding round.
Hiring first full-time engineers or designers.
Focus on acquiring paying customers.
Building feedback loops, A/B tests, basic analytics.
Time Spent
12–24 months between Seed and Series A in today’s market.
Failure Rate
Roughly 60% to 80% of seed-funded startups fail to raise Series A funding. The primary reason? Failure to achieve sufficient traction to justify further investment.
Buffer, the social media management platform, faced this challenge head-on. After launching their MVP, they struggled to convert free users to paying customers. Founder Joel Gascoigne transparently shared their journey on their blog, including how they experimented with pricing models until finding one that worked—eventually reaching $1M in annual recurring revenue, making them attractive for Series A investors.
How to Avoid Failure
Successful seed-stage startups obsess over user acquisition and retention metrics. They:
Hone their MVP by focusing on a small, dedicated customer segment rather than trying to please everyone.
Track and optimize key metrics (customer acquisition cost, lifetime value, churn rate).
Nail product-market-fit signals: >10% week-over-week growth in DAUs (Daily Active Users) or revenue.
Establish repeatable sales and marketing processes.
Build a culture that can scale beyond the founding team.
How to Graduate
To successfully raise Series A funding, seed-stage startups typically need to demonstrate:
Interesting fact: Some startups typically raising bridge rounds (known as "Seed+" or "Pre-A") if they need more time to achieve Series A metrics.
Seed Stage Examples
Airbnb: After their initial concept proved viable, Brian Chesky, Joe Gebbia, and Nathan Blecharczyk were accepted into Y Combinator in 2009, receiving $20,000 in funding. Their first breakthrough came during the Democratic National Convention in Denver when they helped visitors find accommodation during the hotel shortage. By the end of their seed stage, they had hosted 21,000 guests and were growing rapidly enough to secure a $7.2M Series A round.
Slack: Before becoming a communication platform used by millions, Slack was actually a feature within a failed gaming company called Tiny Speck. Founder Stewart Butterfield recognized the value of the internal communication tool they'd built and pivoted the entire company. Within eight months of launching their MVP, they had 16,000 daily active users and were growing 5-7% weekly—impressive enough to secure a $5M Series A round.
Series A: Scaling the Core Business
Series A marks the transition from finding product-market fit to scaling the core business. At this stage, startups focus on growing their customer base, expanding their team, and optimizing their operations.
Interesting Fact: Y Combinator, the renowned startup accelerator, famously focuses on just one early metric: 5-7% weekly growth. This compound growth—seemingly small at first—results in 10x annual growth, enough to transform tiny startups into significant businesses.
Characteristics
Established product with proven market demand.
Focus on growth and scaling operations.
Building out departmental structure and leadership roles: VP of Engineering, Head of Sales etc.
Time Spent
12–24 months from Series A to B on average.
Quick Tip: Raising a Series A round itself can take about 6 to 12 months, and founders are often advised to start preparing for this phase 12 to 18 months before they anticipate running out of cash.
Failure Rate
Approximately 30% to 40% of Series A startups stall before B.
The Series A stage presents unique challenges as companies transition from scrappy startups to structured organizations.
Evernote, the note-taking app, struggled during this phase as they attempted to monetize their large free user base because the free version was "just too good". Their initial premium features failed to convert users at the rate investors expected. CEO Phil Libin tackled this challenge by expanding its offerings from a basic note-taking application to a more powerful business tool, including "enterprise services" and a "business plan" designed for teams and collective work. This enabled Evernote to raise $10M for series B.
How to Avoid Failure
Successful Series A startups typically:
Implement systems and processes that enable growth.
Monitor unit economics weekly; resist growth at all costs if it kills margins.
Maintain startup agility while adding necessary structure.
Invest in codifying culture: playbook for hiring, onboarding, remote work.
How to Graduate
To successfully raise Series B funding, Series A startups typically need to demonstrate:
Year-over-year growth rates of 100%+.
Established market leadership in their specific niche.
Clear path to expanding into adjacent markets or customer segments.
A robust plan detailing use of Series B capital.
Examples
Stripe: After successfully launching their payment processing API, founders Patrick and John Collison focused on making developer integration incredibly simple. This developer-first approach helped them secure early customers like Shopify and Foursquare. By the time they raised their $18M Series A in 2012, they were processing millions of dollars in payments monthly and had established themselves as the preferred payment solution for developers.
Peloton: After building their first connected exercise bike prototypes, founder John Foley faced rejection from over 400 investors. Undeterred, he launched a Kickstarter campaign that raised $307,000 and proved consumer interest. With this validation, Peloton secured $400,000 in seed money (2012), $3.5M Series A (2012), and $10.5M Series B (2014). They had established a dedicated early customer base willing to pay for a bike plus $39 monthly for content.
Series B & C: Growth & Market Expansion
At this juncture, you’re a known entity in your home market. Series B and C rounds fuel aggressive expansion as companies pursue market dominance. These stages focus on scaling marketing efforts, entering new markets, and potentially acquiring smaller competitors.
Characteristics
Established market position with significant revenue.
Focus on market expansion and new product development.
Building infrastructure for global operations.
Building midsize teams (50–200), robust HR and legal functions.
Time Spent
2-4 years: 1–2 years between each round.
Failure Rate
Approximately 25% to 35% (~33% for series B and ~24% for series C). By this stage, acquisition becomes a common exit path, with roughly 30% of Series B/C companies being acquired rather than failing outright.
The primary challenges during these stages involve maintaining growth momentum while expanding into new markets and product categories. Companies often struggle with organizational complexity and maintaining their culture amid rapid expansion.
Snapchat (now Snap Inc.) faced significant challenges during this phase when Facebook-owned Instagram copied their core "Stories" feature. Rather than concede defeat, CEO Evan Spiegel doubled down on innovation, launching Spectacles hardware and expanding Snapchat's augmented reality capabilities. This pivot helped them maintain user growth and secure additional funding on their path to IPO.
How to Avoid Failure
Successful companies at this stage typically:
Maintain product innovation despite growing organizational complexity.
Localize product and support for new markets—don’t assume a U.S. playbook works everywhere.
Build robust leadership teams with experienced executives.
Develop systematic processes for entering new markets.
Automate core processes: billing, CSAT surveys, compliance audits.
How to Graduate
To progress to late-stage funding (Series D+), companies typically need:
Established market leadership position.
International presence across multiple markets.
Diverse product portfolio with multiple revenue streams.
Examples
DoorDash: After demonstrating product-market fit with their food delivery service, DoorDash focused on aggressive expansion. With their $40M Series B in 2015, they expanded to over 20 markets. By their $127M Series C in 2016, they had refined their logistics technology to increase delivery efficiency, which helped them compete with established players like Grubhub and Uber Eats. Their relentless focus on suburban markets (which competitors neglected) and restaurant partnerships helped them eventually become the market leader.
Zoom: Before becoming a household name during the COVID-19 pandemic, Zoom was steadily growing its enterprise business. After raising a $30M Series C in 2015, CEO Eric Yuan focused on two key differentiators: video quality and ease of use. While competitors offered complex unified communications platforms, Zoom obsessively refined their core video conferencing product. By their $100M Series D in 2017, they had achieved 150% year-over-year growth, and a $1B valuation—all before their pandemic-fueled explosion in usage.
Late-Stage (Series D+): Diversification & Optimization
You’ve proven scale; now you must prove sustainability. The focus shifts to M&A, new verticals, licensing deals, and efficiency. You’ll beef up governance, implement ERP/CRM systems, and shore up compliance—preparing for the glare of public markets or a major acquisition. These companies are no longer startups in the traditional sense but rather companies with significant market presence.
Characteristics
Dominant market position with significant revenue.
Pursuit of adjacent M&A, new product lines, or licensing deals.
Heavy investment in systems (ERP, CRM), security, and compliance.
Building infrastructure for public market reporting.
Interesting fact: Only about 1% of startups ever reach the late stage, making these companies statistical outliers in the startup ecosystem. However, these rare successes typically create outsized economic impact, with the top 0.1% of startups generating 40% of all startup-created value.
Time Spent
On average around 18-36 months before a major exit event like an Initial Public Offering (IPO) or an acquisition.
Failure Rate
Around 10% to 15% which indicates a very low late-stage failure rate.
The primary challenges at this stage involve maintaining innovation amid bureaucracy and preparing for public market scrutiny. Companies often struggle with the transition from growth-at-all-costs to sustainable business models.
Uber faced substantial challenges during this phase as rapid expansion revealed fundamental unit economic issues in their core business model. Under CEO Dara Khosrowshahi, they shifted focus from pure growth to operational efficiency, divesting unprofitable initiatives like self-driving cars and focusing on food delivery as a complementary business. These adjustments helped them eventually reach their 2019 IPO despite posting billions in losses.
How to Avoid Failure
Successful late-stage companies typically:
Balance growth investments with path to profitability.
Maintain innovation through internal incubators or strategic acquisitions.
Implement public-company-ready governance and compliance.
Develop diversified revenue streams to reduce market risk.
Build robust investor relations capabilities.
IPO, Acquisition & Beyond
The final transition for most venture-backed startups is either going public through an IPO or being acquired by a larger company. This exit provides liquidity for early investors and employees while beginning a new chapter for the company.
Interesting fact: The average time from founding to IPO has increased dramatically—from 4.8 years in 1999 to over 11 years in 2025. This reflects companies staying private longer due to abundant private capital.
Late-Stage Examples
ByteDance/TikTok: After achieving massive success in China with Douyin, ByteDance launched TikTok internationally and acquired Musical.ly to accelerate growth. Their ability to create a global social media platform that challenged established players like Facebook demonstrated how late-stage companies can still disrupt markets through product innovation. ByteDance offered $189.90 per share in new buyback program valuing the company at $315B in 2025.
Instacart: After demonstrating product-market fit in urban markets, Instacart raised several late-stage rounds to expand nationwide. Their $871M Series F round in 2018 funded aggressive expansion into suburban markets. When the COVID-19 pandemic hit, their existing infrastructure enabled them to scale rapidly, growing from 200,000 to 500,000 shoppers in just eight weeks. This preparation and execution during a crisis propelled them to a successful IPO in 2023.
How to Recognize the Stages of Startups
As an investor, job seeker, or business partner, identifying a startup's current stage helps set appropriate expectations and strategies. Here are reliable indicators beyond the obvious funding rounds:
Job Openings as Stage Indicators
Pre-Seed/Seed: Hiring generalists and "wear many hats" roles; founding team doing interviews.
Series A: First specialized roles appear (Growth Marketing vs. general "Marketing"); first management positions.
Series B/C: Specialized departments form; hiring for international roles; experienced VP-level executives.
Late Stage: Mature HR processes; specialized compliance and governance roles; significant executive poaching from public companies.
Product Development as Stage Indicators
Pre-Seed: Prototype or alpha product with limited functionality.
Seed: MVP with core features; frequent major changes based on feedback.
Series A: Stable core product with predictable release cycles.
Series B/C: Multiple product lines or features; enterprise-grade reliability.
Late Stage: Comprehensive product ecosystem; acquisitions to fill portfolio gaps.
Office Space as Stage Indicators
Pre-Seed: Co-working space or founder's apartment.
Seed: First dedicated office, often in startup-friendly neighborhood.
Series A: Expanded office with dedicated meeting spaces and team areas.
Series B/C: Multiple offices in different cities; custom-designed spaces.
Late Stage: Campus-style headquarters; international office presence.
The Stages Are Guidelines, Not Truth
While these stages provide a useful framework, the most successful startups often defy convention. Some bootstrap entirely without raising venture capital. Others skip entire funding stages through exceptional growth or strategic acquisitions.
Mailchimp, the email marketing platform, never raised venture funding and was entirely bootstrapped by founders Ben Chestnut and Dan Kurzius. In 2021, they sold to Intuit for $12 billion—one of the largest exits ever for a bootstrapped company.
The stages of startup growth aren't a rigid staircase but rather a flexible framework. The best founders understand each stage's unique challenges and metrics, adapting them to their specific business model and market conditions.
Think You Need Venture Capital? These Numbers Say Otherwise
Startup stages are often defined by funding rounds—but here’s the truth: over 90% of successful businesses never take institutional investment. Most rely primarily on personal savings, friends and family, and traditional debt financing.
This self-funded approach often leads to higher survival and profitability rates compared to VC-backed ventures. Furthermore, a survey of the Inc. 5000 fastest-growing companies in the US directly confirms that less than 7% (specifically 6.5%) had raised venture capital, highlighting that even among high-growth firms, VC funding is a rare path, partly because most operate outside traditional VC-heavy tech sectors.
Despite its statistical rarity, VC-backed companies do have a disproportionate impact on IPOs, job creation, and disruptive innovation, which contributes to their prominent public narrative.
Conclusion: The Journey Never Truly Ends
From pre-seed ideation to public company operations, the startup journey transforms not just businesses but the people who build them. While the failure rates are sobering at each stage, the startups that successfully navigate this lifecycle create outsized impact on our economy and society.
Whether you're a founder mapping your journey, an investor evaluating opportunities, or a professional considering joining a startup, understanding these stages provides crucial context for setting expectations and making informed decisions.
Remember, behind every unicorn is a trail of sleepless nights, failed experiments, brutal pivots, and relentless belief.
After all, as Reid Hoffman, founder of LinkedIn, famously said:
"Entrepreneurship is jumping off a cliff and assembling the airplane on the way down."
So whether you're at idea stage or eyeing IPO, keep climbing. The view at the top? Worth it.
90% of startups fail. Want to learn how not to? Subscribe to our newsletter for weekly insights, tips, and stories to help you stay motivated and achieve your goals!