Continuing with our series on startups, this week we will look at the different stages they must go through and what each one consists of. 

• Stage 1 - Pre-seed: This is the initial stage, that of the conception of the business idea and the development of the product or service. Startups must convince others to get on board with a motivational pitch or a presentation, without yet having a validated business model or a prototype to test the market. At this stage, the initial team is formed, the foundations are laid through a Partners' Agreement and the idea begins to materialize. As for financing, the entrepreneurs will probably be the ones to assume the first start-up costs. However, in countries such as the United States, it is already possible to obtain small investments at this stage, called FFF (Friends, Family and Fools).. One of the options for this phase is to join an incubator or accelerator, which will help you by offering economic incentives and advice from the experience of professionals in the field.
• Stage 2 - Seed: This phase is perhaps one of the most important stages in the life cycle of a startup. This is when the project becomes a reality and the business model is validated. A M.V.P. (minimum viable product) will be developed to make it possible to test the product in the market with real customers. Iteration is fundamental, since at this stage the most important thing is to obtain validation from the target audience and adjust the product or service to their needs. Once sufficient data is obtained to justify the idea, it can begin to grow. As for financing, it is time to seek investments from accelerators, Business Angels, FFF, or funds oriented to startups in early stages.
• Stage 3 - Early stage: Once the product is viable and has been tested by the first customers or users, it is time to improve the product through an iteration process in which all possible feedback is collected to improve and obtain a product based on real feedback. In this way, you will be able to turn your M.V.P. into a tangible product. Detecting the most important features of a startup is one of the most important tasks in this phase, as well as establishing the first commercial agreements for the future. In this process a new financial impulse is needed, which usually comes from funds and investors specialized in this phase of the life cycle of the company.
• Stage 4 - Growth stage: At this stage the startup already has a product that satisfies a strong market demand, i.e. it has gone through the product-market-fit, has recurring customers and positive metrics. Therefore, it is time to grow. At this stage it is important to have a defined growth strategy and an effective way to attract customers. In any case, the product must continue to be improved in order to adapt to the startup's growth. Here the startup will probably have to hire more people to join the team. For this phase, external financing is important, but cash flow should already cover many of the day-to-day needs.
• Stage 5 - Expansion: This is the moment when the startup must take the leap and expand to other markets and segments. In this stage many risks are taken and this could define the future of the startup. Financing is vital here, it can come externally through public investment or support, or internally with the company's own funds. During expansion it is advisable to make alliances with other companies that have been in the market for a longer period of time in order to accelerate growth.
• Exit: Although we talked about 5 stages before, we can say that there is a sixth one, which is an option that some entrepreneurs choose. It consists of selling the startup to another company, integrating it into another larger company or through an IPO (Initial Public Offering), which means that it goes public. Although the objective of many startups is not to exit but to become high-value companies, this option exists.

As we can see, different priorities, objectives and tasks are required at each stage. The growth phases of a startup are marked not only by its financial needs, but also by its capabilities. For any investor, it is important to be able to identify in which stage the startup is, in order to understand what to pay attention to, and thus be able to really see what the required return should be, which should be different according to the stage the startup is in.

Over the past few weeks, we have provided information on what startups are, how they differ from an SME, how many types there are and what their stages are. If you are interested in investing in a startup, there are three more things you should know:

1. Do not expect an immediate return, these are are medium and long term investments.
2. If you are going to investt is advisable to have a diversified portfolio. You can do it directly or through third parties that have experience and/or track records in this type of investments.
3. It is important to to know the business model of the startups in which you will invest directly or indirectly.

Investing in startups can have its risks, however, it is an absolutely enriching process that will allow you to build opportunities for the future, surround yourself with innovative minds and have a return in the process.surround yourself with innovative minds and have a return in the process.

Private Debt Team, Fynsa