Stage 1 - Embryonic - No Product and little expense history
• No product revenue to date
• Limited expense history
• Have an idea and possibly some initial product development
• Incomplete management team
• Seed capital or first-round financing provided by friends and family, angels, or venture capital firms
• Securities issued sometimes common stock but more commonly preferred stock (Preferred virtually always convertible to common)
Stage 2 - Early development - Moderate development effort with partial proof of concept
• No product revenue (still)
• Substantive expense history, product development is under way, and business challenges are thought to be understood
• Second or third round of financing occurs during this stage
• Typical investors are venture capital firms, which may provide additional management or board of directors’ expertise
• Securities issued to those investors are preferred stock
Stage 3 - Later stage development - Product in beta testing
• Significant progress in product development
• Key development milestones met (e.g., hiring of a management team)
• Development is near completion (e.g., alpha and beta testing)
• No product revenue (still)
• Later rounds of financing occur
• Typical investors are venture capital firms and strategic business partners
• Securities issued to those investors are typically preferred stock
Stage 4 - Commercially Feasible - First revenues, operating losses
• Key development milestones met (e.g., first customer orders or first revenue shipments)
• Some product revenue, but still operating at a loss
• Usual for mezzanine rounds of financing
• Discussions start with investment banks for an initial public offering
Stage 5 - Financially Feasible - Break through to profitability
• Product revenue is achieved
• Breakthrough measures of financial success such as operating profitability or breakeven or positive cash flows
• Liquidity event of some sort, such as an IPO or a sale of the enterprise, could occur
• Securities issued typically all common stock, with any outstanding preferred converting to common upon an IPO (and or other liquidity events)
Stage 6 - Established - Meaningful history of revenues or profits
• Established financial history of profitable operations or generation of positive cash flows
• IPO or sale during this stage