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Lifestyle firms are those ventures that provide
only a reasonable living for their founders, rather than
incurring the risks that come with prospects of high growth.
These companies have five-year
revenue projections under $10 million and are the classic
small businesses. Constituting more than 90% of all
start-ups, it is unlikely that these firms will attract
equity funding from venture capital investors; instead they
have to rely on internal funds.
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Middle-market firms have growth prospects of more
than 20% annually and five-year revenue projections between
$10 and $50 million. These firms are attractive to
venture capital investors, but they also depend heavily
on bootstrapping to fund initial growth.
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High-potential firms are those with a
vision for growth that are also
innovative, risk-taking and able to change. They typically plan to grow
into a substantial firm with 50 or more employees within 5
to 10 years, have five-year revenue projections in exceed of
$50 million, and anticipate annual growth rates in excess of
50%.
These
“big-time winning” firms are often the primary recipients of
several rounds of external
equity finance, early on from
business
angels and later from
venture capitalists. Making up less than 1% of all
start-ups, these firms are among the
Microsofts,
Googles,
Disneys,
Dell Computers of the next millennium.
The last two growth categories
offer the greatest economic contribution of all the firm types;
some economists believe that national economic development
depends on a country’s ability to spawn a lot of high-growth,
entrepreneurial firms.
8 Key Entrepreneurial Questions
Venture Financing Process
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