When does a startup “graduate” into the emerging growth company? While there is no strict definition of what an emerging growth company entails—unless you are looking at the Securities and Exchange Commission’s criteria for how an emerging growth company goes public—there are a few common traits of fast growing companies that would justify including yours in this category.
1. The Backing of Venture Capitalists
Venture capital funding offers an instant boost to a company’s growth plan but has another benefit as well: confidence in what’s next for the young, rapidly growing business. Venture capital bolstered the likes of Intel and Google when they were starting out as emerging growth companies, and those companies now have their own VC arms.
Attracting the attention of VCs and showing them your company is worthy of their investment can be an uphill battle—a Harvard Business School study found that for every VC deal, the firm considered 101 companies, and only 28 of those had an initial meeting with management.
What makes a company high growth? The milestone of VC funding is just one of several ways to characterize an emerging growth company, which the SEC defines as a company that has less than $1.07 billion in annual revenue. Others may look at an emerging growth company as one that is in a pre-revenue stage but shows tremendous promise.
2. Preparing for Strategic Change While Experiencing Fast Growth
Rapid growth companies that are working toward a particular strategic goal tend to act less like a startup in survival mode and more like a fast-moving and gradually maturing company. This means management may realize it’s time to line up an accounting firm to undergo the first audit, an often lengthy and complicated process that can be eased by audit readiness experts. A pre-audit evaluation can shake out any issues in the accounting and lead to tighter processes and more trustworthy and timely financial information and insights.
3. Moving Away From an Entrepreneurial Mindset
There comes a point during incredibly fast growth when some companies begin to see that while their way of operating has supported an innovative culture and fast pace, they may have lost touch with what’s going on inside the business. This is around the time when a company could greatly benefit from the expertise of a CFO, perhaps on a part-time basis, to help build up the finance function, create an appropriate tech stack, and provide strategic-level input on the next steps the company should take.
4. Looking for a Smarter Way to Grow
Growth is wonderful until it becomes overwhelming. Emerging growth companies are at a stage where they want scalable growth. An expert finance perspective can help get them on track, by providing insights on how the business is truly performing, whether that is sustainable, and what needs to change to scale the company.
5. Expanding with New Products or New Markets
Once a company has found success with one product or service, it may move forward with another way of expansion, potentially by bringing in more talent, investing in a new product, acquiring another company, or branching out to another part of the country or overseas.
How can such an emerging growth company manage its current resources and take on more without burning anyone out and without burning through cash? This is the time when fast growing companies would want to take an inward look to ensure that management is able to tap near real time information to base their decisions—so that they can act quickly but not rashly, but with confidence in how to move the company forward.
Emerging Growth Company Traits and How Yours Can Thrive
A common theme in this article is access to critical, timely information. Leadership needs it to make the right strategic calls for the business, while potential investors and acquirers will be looking for it at critical moments of growth plans.
Is your finance function and your accounting systems providing you with up-to-date, actionable information? Reach out to RoseRyan today to see how we can bolster your finance function and set your company on a more solid path for growth.