Understanding the Lifecycle of a Private Company

Have you ever wondered how a great start-up idea turns into a full-blown unicorn? A successful private company passes through various phases, from ideation to funding and growth. The lifecycle of private companies varies across industries, sizes, and product offerings. For some companies, a complete lifecycle can be as short as five years, and for some, this could be longer than ten years. The trend continues to grow for private Unicorn companies to stay private longer and longer with an average of 14 years to Initial Public Offering (IPO). Regardless of the sector, private companies must manage each growth stage effectively and employ resources that contribute to short-term and long-term value.

We have highlighted the typical journey of a private company:

Start-up and Founding Stage

An excellent start-up idea aims to solve a problem, ease a pain point, bridge a gap, and, most importantly, provide value. There will be bouts of trial and error during the start-up stage. What keeps the wheels running is the zeal to succeed and the courage to take risks with the end goals in mind.

The start-up stage is usually where pre-seed and seed funding activities occur. Bootstrapping and crowdfunding are primary sources of financing for private companies in the start-up stage. Most founders at this stage raise capital from their savings, family, and friends or loans from financial institutions. Companies also raise capital from angel investors or other private investors who believe in the dream and vision of the company and are willing to take a chance on the company’s success. A private company can quickly transition from the founding to the growth stage with the right business strategy, product-market fit, and funding.

Growth Stage

What does the growth stage entail? Higher revenue, more sales, and possibly increasing expenses as operations scale up. However, to remain profitable, private companies should manage and control costs at this stage. An excellent market solution and customer buy-in can fuel rapid growth.

In the growth stage, private companies attract various types of investors. Common sources of capital include venture capital, private equity, and other institutional investors. The primary goal for investors is to make returns. When investors buy into your company at this stage, they want to see business plans for expansion and profit maximization. Companies generally raise capital through a series of funding — Series A and B. In 2021, early-stage start-up funding in North America reached record heights as investors put $108.5 billion into Series A and B deals.

Maturity Stage

At the maturity stage, the company growth generally slows down. Private companies need new ideas to keep loyal customers and attract new ones. An effective marketing strategy is still relevant in this stage, whereas activities generally wane around general talent acquisition. Most hiring decisions at this stage are strategic and geared towards business transformation.

More funding may be needed to continue scaling operations and generating profit. At this stage, most private companies are already on Series C funding. Capital for continuing operations is often sourced from institutional debt, venture capitalists, and private equity investors. Investors continue to monitor free cash flow and company performance at this stage.

Post-Maturity Stage

Industry experts often call the post-maturity stage the decline stage. However, not all private companies decline. Some private companies keep scaling and providing value to customers. Companies still thrive as private entities with the right product and marketing strategies. As a result, investors continue investing to support operations in return for higher revenue and profit. In 2021, over half (519) of the current 1000+ Unicorn companies became Unicorns. A Unicorn was born every 16 hours in 2021, with a dip to only 1/8th of that level in 2022. In Q4 of 2023 however, we saw Unicorn births rebound quarter-over-quarter from 14 to 23.

Some investors identify the most beneficial period to exit their investments in private companies. An exit can be triggered by mergers and acquisitions, buy-ins, or buy-outs. It is essential to identify and explore exit opportunities beneficial to your company and investors at this stage. An alternative option for private companies is to go public through an initial public offering (IPO). An IPO enables public investors to buy into the company and provide capital for continuous growth.

The typical lifecycle of a private company may be similar, but it still differs across sectors. The company’s ability to identify and apply effective business strategies can enable growth and development. Fundraising is an essential process for private companies to grow and achieve economies of scale. Investors provide funding for companies with proven revenue-generating streams and potential for growth. InvestX’s goal is to democratize this asset class, build more transparency and allow easy transactions in the private markets. InvestX empowers advisors with a marketplace, technology, and insights for investing and trading private securities.

For more information on InvestX, please reach out to your advisor or contact us.