How We Classify Company Stages of Evolution
|
Startups strive to be innovative and unique, and grow at different rates as a result. When drawing together and analysing large sets of data on ambitious businesses, you need to be able to classify these varied growth trajectories, regardless of sector or location.
A cross-sectoral classification system allows you to conduct more informed analyses, and reliably identify key trends, areas of potential, or industries that are currently underfunded.
The problem with traditional life cycle terms
Funding rounds are often referred to as ‘Series A’, ‘B’, ‘C’, etc. (mainly in the US) or ‘First Round’, ‘Second Round’, etc. (in the UK). It’s second nature to think of startup investment in this way, with companies, investors, and the press all relying on these terms.
But despite their wide use, there are issues arising from traditional life cycle labels, due to inconsistent definitions and increasing round sizes. What these different series and round categories actually mean can vary hugely by sector, country or investor type. For instance, at the time of a ‘Series C’ fundraising, a three-year-old pharmaceuticals firm may still be in pre-clinical trials, whilst a software venture may be in full ‘take-over-the-world’ mode.
Meanwhile, many funding rounds are not categorised at all, either by a company or their investors. These end up being classed as ‘unattributed’, ‘unallocated’, ‘unspecified’, ‘uncategorised’ or ‘unclassified’, and fail to reflect where a business is in its growth journey (all rather unhelpful when you want to analyse the data on investment trends).
The industry needs terminology that consistently and impartially classifies a company’s stage of evolution—so that’s exactly what we’ve done.
How do we track a company's stage of evolution?
Here at Beauhurst, our Data team marks every company’s life cycle stage as one of: Seed, Venture, Growth, Established, Exited, Zombie or Dead. The fundraisings held by businesses at these stages are classified to match.
Using our methodology, while a pharma company operating at the Seed stage and a software company operating at the Growth stage might both self-report a Series C round, we’d classify them as seed-stage and growth-stage rounds.
We’ve developed over 30 internal guidelines for our team to categorise a company’s stage of evolution. And the Beauhurst platform gives you a comprehensive timeline, showing how companies grew to each stage and the different types of funding and support they used along the way.
Defining our company life cycle stages
Here’s a quick rundown of each of the stages of evolution we use to classify high-growth companies on the Beauhurst platform.
Seed
A seed-stage company is a young startup, with low employee count, valuation, and total equity investment raised. There may still be uncertainty as to whether its product or service has an adequate market, or it may be working to gain regulatory approval. The most common sources of funding for this stage of company are grant-awarding bodies, crowdfunding platforms, and angel investors.
While most seed investments are under £1m, the biggest seed-stage round in 2021 was secured by Flexion Energy. The London-based cleantech startup incorporated in December 2020 and develops energy storage technologies servicing the grid. This £150m equity fundraising in July, the company’s first to date, was backed by GLIL Infrastructure.
Venture
Venture-stage companies have developed their business models and technology over multiple years, typically securing investment and a valuation in the millions. They’ll likely have some revenue, and may be expanding their initial product range. Venture rounds typically involve private equity and VC funds, although may tap into crowdfunding too.
The most valuable venture-stage investment of 2021 was a £200m equity round from US asset management firm Oaktree. It was secured by investment vehicle RedCat Pub Company, to acquire retail and tenanted pubs across the country.
Growth
When a company has been operating for more than five years, and has grown to multiple offices, they’re more likely to have reached the Growth stage of evolution. A growth-stage company will also have regulatory approval and is likely bringing in significant revenue and investment, with a valuation in the millions. It will be continuing to expand its product range and international activities.
The most valuable growth-stage investment in 2021 was secured by unicorn company CMR Surgical. The surgical robotics firm received £432m, in its ninth equity funding round to date. The round was backed by numerous investors, including Cambridge Innovation Capital, Softbank Vision Fund and Tencent.
Established
An established-stage company has been trading for 15+ years, or 5-15 years with a three-year consecutive profit of £5m+ or turnover of £20m+. As you may expect, these businesses usually have several offices and a widely-recognised brand. Funding at this stage is often deployed by corporates, private equity firms, banks and specialist debt funds, or major international investors.
The largest investment into an established-stage company in 2021 was secured by challenger bank Revolut. The company secured £578m from Schroders, Softbank Vision Fund and Tiger Global, to fund product development and expand its marketing efforts, particularly in the US and India. Revolut is one of 17 fintech unicorns in the UK, having reached its billion-dollar valuation in 2018.
Exited
Exited companies are those that have exited the private market, by listing on a stock exchange or being acquired. We do not consider MBOs as exits, but rather a trigger to start tracking a company as high-growth on the Beauhurst platform.
An example of an exited company would be Cambridge-based digital security company Darktrace. It underwent an IPO on the London Stock Exchange back in April 2021.
Zombie
A zombie company is our name for businesses that have been neglected for a long time or are in a troubled financial state. Whilst the company is not ‘dead’, it doesn’t appear to be operating: the company’s website/social media shows prolonged, uncharacteristic neglect or the company’s status on Companies House is troubled (i.e. in administration, liquidation or dissolution first gazette).
A down-round is not sufficient reason for a company to be classed in the Zombie stage, nor is a holding company stopping trading if its subsidiaries are still operating as usual.
Dead
The Dead stage of evolution is the point of no return. A company will reach this stage if it’s stated it has definitively ceased all activity, its top parent company has been formally dissolved on Companies House, or if it’s been stuck at the Zombie stage for a prolonged period of time.
Discover the UK's most innovative companies.
Get access to unrivalled data on all the businesses you need to know about, so you can approach the right leads, at the right time.
Book a 40 minute demo to see all the key features of the Beauhurst platform, plus the depth and breadth of data available.
An associate will work with you to build a sophisticated search, returning a dynamic list of organisations matching your ideal client.