Lesson 2 of 8 · About 4 min read · By Lane Kawaoka, PE · Updated November 2026 · Course home

How Private Companies Grow, From Seed to IPO

Your question: “What stage am I buying into, and what does that mean?”

“Pre-IPO” covers almost every private company in existence. A two-person startup with a prototype is pre-IPO. So is a private company worth tens of billions of dollars with thousands of employees. The label tells you nothing about risk. The stage tells you a lot more.

The Private Company Lifecycle

Private companies usually grow by raising money in rounds. Each round brings in new investors at a new price, and each one normally happens because the company hit milestones that made the next step possible. The usual sequence runs from seed, through Series A and B, through later rounds often called Series C through F, and then to an IPO or acquisition that turns private shares into something you can sell.

Companies raising Series C and beyond are usually called later-stage private companies. They tend to have real operations, real revenue and larger teams. That doesn’t make them low risk, and an IPO is never certain. Any investment in a private company carries a real chance of losing all of your money.

Stage by Stage

The table below is a general picture. Plenty of companies skip rounds, raise odd-sounding rounds (“Series B-2”) or never get past the early ones.

Pre-IPO Stage Selection Is a Risk-Return Decision

It’s tempting to judge a private deal only by asking how big the company could become. The round matters just as much, because each later round usually lowers both the upside and the chance of failure. Early rounds carry the possibility of very large multiples and the most uncertainty about product, revenue, follow-on funding and exit timing.

A framework I find useful is to think in ranges, not slogans. For smaller venture-style companies, Series B through D can be a middle ground. The company has moved past pure concept risk, and there may still be meaningful room to grow. For very large private companies, that middle may sit later, around Series C through F, because they’re already operating at a much bigger scale.

That’s a lens, not a rule. A seed-stage startup, a Series C growth company and a mega-cap private company can all be called pre-IPO while carrying completely different odds, timelines, dilution and return potential.

What Each New Round Means for Earlier Investors

Every round changes the picture for people who already own shares:

• The price moves. An up round (a higher price than last time) usually means the company hit its milestones. A flat or down round means it didn’t, or that the earlier price was too optimistic.
• Your slice shrinks. New shares are issued, so each earlier holder owns a smaller percentage. If the company grows enough, a smaller slice of a bigger company is still worth more. If it doesn’t, dilution simply eats into your stake.
• New investors often get better terms. Later investors frequently negotiate preferred shares that get paid back first in a sale. Lesson 4 explains why that matters.

When you look at a deal, ask how many rounds the company is likely to need before an exit, and how much dilution that implies.

Not Every Company Follows the Ladder

Many smaller private companies never reach a formal Series B, C or D. Some are bought early. Some plateau and run as small profitable businesses for years. Some fail before round labels matter. So a simple rule such as “only invest in Series C or later” can mislead you.

The better question: where is this specific company in its life, and what evidence shows that enough risk has come off to justify today’s price? Look for revenue, customers who stay, demand that lasts, serious investors willing to put in more money, realistic exit paths, and a valuation that still leaves room for a sensible return.

How to Tell What Stage You’re Really Buying

Sponsors and founders describe stages in the most flattering way. A few questions cut through it:

• When did the company last raise a priced round, at what valuation, and who led it?
• How much revenue does it have today, and is it growing?
• How many months of cash does it have at its current spending?
• How many more rounds will it likely need before an IPO or sale?
• Who else is investing in this round, and on what terms?

The answers place the company on the lifecycle far more reliably than the word on the pitch deck.

Why Big Late-Stage Companies Are Different

At the far end of the lifecycle sit companies that are private in name only, with tens of billions of dollars in value and years of operating history. Investing in them is a different exercise from backing a startup. Lesson 3 covers them on their own.

Watch: A Conversation on This Topic

If you would rather listen than read, this episode covers much of this lesson. Use the timestamps to jump to the parts that matter most.

I am looking at a private company that just raised a [stage, e.g. Series B] round. Explain the usual risks at this stage, how later rounds, dilution and liquidation preferences could affect someone who invests now, and what I should ask the company or the deal sponsor. Use the lessons at thewealthelevator.com/home/resources/angel/ as background. Do not recommend a specific investment, and list what I should confirm with my CPA.

The podcast behind this course

Listen to the Angel Investing podcast

Many people who find this course don’t realize there’s a whole podcast on this topic. Each month I walk through angel and pre-IPO deal terms, due diligence questions and lessons from real conversations with investors.

Listen on Apple PodcastsWatch on YouTube