Early Stage (Business) - Explained
What is an Early-Stage Business?
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Table of ContentsWhat is an Early Stage Business?Company Conditions During the Early StageChallenges For Early stage companiesAcademic Research on Early Stage Businesses
What is an Early Stage Business?
Early-stage is a term used to characterize a startup business venture. It generally concerns the phase of startup development generally preceding the rapid growth phase. The early stage is characterized by activities such as research development, marketing research, and product business development.
This is considered by entrepreneurs, investors, and researchers to be the riskiest stage in the startup lifecycle. The probability of success of venture depends heavily upon actions taken during this stage. During this phase, consumers (or the customer market) will be called to evaluate and compare the price, quality and feasibility of the business's value proposition.
This may include comparing the produce or service with the existing offerings already in the market. This task is known as a beta test. The purpose is to reach a minimum viable product or value offering into the market.
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Company Conditions During the Early Stage
Early stage companies generally have limited revenue, sales, and market share. The company has generally identified a product-market fit. Early-stage investors search out and scrutinize these business for opportunities to invest and turn a profit. The prospect of rapid growth and potentially high future earnings attracts many potential investors. To pair with the high earning potential, there is also a high likelihood of business failure and total loss.
Challenges For Early stage companies
The early stage company faces numerous challenges in this stage. The company is new and it does not have ample resources to cover its operational and other related activities. Because of the lack of credit history and demonstrable revenue, traditional means of borrowing is generally out of the question.
For this reason, early-stage ventures often depend upon investors to fund the business growth. These investment funds, however, come at a very high cost. The investors will demand a substantial percentage of business ownership in exchange for their investment funds.
The amount of investment and the percentage of the business sold is based upon a company valuation. The methods for valuing a company at this stage are very imprecise. A true and accurate valuation is very difficult to determine.