Every company grows at a different rate, but all brands have to go through the same phases until they become reputable and trusted businesses. It is said that putting your money into a new company can either be the best decision you’ve ever made, or it can be a mistake that could cost you a lot of cash. New brands are dividend in different stages, and here we are going to talk about the lesser-known one or the late-stage startup. Use this 2022 guide to learn what a late-stage startup is, how do you value it, and why do you need to have this information before you choose to put your money into it.
What are late-stage startups?
The first thing we are going to do is define the meaning of these companies. As you already know, when we talk about startups, we usually think of brands that just showed up on the market, without knowing what they are doing, where they are going, and more often than not, these companies either become different than the initial plan, or they tend to fail in time. This is not something that happens always, but when the brand is at its beginning, there is usually no target item and they are not well-established with clients and customers.
Well, after this initial phase is over, the early company moves to another level that is called a late-stage startup. By definition, these brands already have an item or a product that they are basing their marketing on, and they have a specific plan for the company and the marketing process.
These brands know who they are targeting and what they want to do on the market. They have a better system, and they have shown some level of trustworthiness to the audience. Even though they are still not well-established on the market, they are still better known.
Note that when it comes to this stage of the company, the brands are usually deep into the advertising stage, and they know how they are going to address their targeted audience. They are no longer testing the market, and they are not trying different strategies out.
One thing that will help you recognize these companies is that they are willing to collaborate with others, and they are looking for other brands that are on the same level as them so that they can do a mutual collaboration. They can be looking for other goods that they can present, or they can be looking for startups to work together and build each other up.
In this phase, the brands are already bringing in the revenue, and they are either making money out of the product that they have placed on the market, or they are really close to making profits. In this phase, the investment usually falls under Series C or D, or they can be placed in the so-called later-lettered rounds.
According to Richard Fox, the way for success and faster growth is to be willing to invest in time, knowledge, and proceed with passion, so the pace at which brands expand will depend only on the willingness and capabilities of the people leading the company.
They usually choose to either look for a good investment that can help them grow even further, or they can be interested in an initial public offering. These brands are looking for ways to expand, and they are not interested in staying in the startup phase, so they will be willing to even risk to be able to make bigger profits and reach a bigger audience.
How are they valued?
Now let’s talk about the way that these brands are valued, and how we can know how much they are worth. Know that it is difficult to give a fair evaluation of startups, especially those that are growing fast and that are moving quickly from one phase to another.
It is said that for this process to be fair, it is usually done by one professional only since different people and fund managers can value them at different stages.
The valuation is usually based on several different approaches, and they are chosen by the person doing the valuation. Note that the things that have to be taken into account include not only the growth of the brand and the pace at which it expands but also the revenue and the cash flow that the company brings.
The methods that are most commonly used include market comparable and the model of probability-weighted expected return.
It is difficult to know what is going to happen with any startup, no matter if it is in its early stage or in the late one. Sometimes the growth can be forecast, but this can be done only by experts who have been in the business for a long time.
The investors who are interested in putting their money into a business need to be ready to spend time evaluating the stage of the brand and the rate at which it’s growing. They need to consider how much profits they are currently making, and the potential they have in the long run. They should also check the targeted audience, and see if those people would actually be interested in the core product that the startup has already placed.
One thing that has to be noted is that investors may make a mistake when putting in their money and trust into a startup business, but more often than not, if they do the proper valuation, they are not going to regret their decision.
As you can see, there are different methods that can be used to value a late-stage startup, and they are chosen by the people who do the evaluation. The approach depends mostly on the investor, and different investors may choose different methods. If you are choosing a model, you should focus on something that will show you the product, the potential it has, the growth of the company, and the profits that it is making. There is always going to be some level of uncertainty when this is done, but even though things cannot be predicted fully, you can still make a well-rounded decision based on the information you have and the analysis that you do.