Startup Funding Espresso -- Invest Early-Stage or Late-Stage - What’s the Challenge?

Invest Early-Stage or Late-Stage - What’s the Challenge?

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Venture capital has two choices in funding startups. 

They can go for early-stage companies or late-stage companies.

So, which stage to focus on?

The risks are higher for early-stage companies, but the valuations are lower. Any meaningful acquisition typically leads to a successful investment outcome.

Later-stage companies come with less startup risk, but valuations are typically high. The company must sell for a substantial valuation to give the investors a return.

As the rule of 5 tells us, a good investment requires an exit of 5 times the post-money valuation.  Later-stage companies often come with $20M to $30M post-money valuations which means they would need to exit at $100M to $150M to be a successful investment.

Early-stage startups simply need to launch and grow reasonably well. 

Later-stage startups need to become the leader in their category as acquisitions usually focus on the leader and not the various followers.

In conclusion, the early-stage company comes with high risk for startup failure but an easier time to reach a successful investment exit.

The later stage startup has a lower risk for startup failure but a more challenging time to reach a successful investment exit.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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