Understanding Key Stages of Growth for Investors

For investors, understanding the different stages of a company’s growth is critical to making informed investment decisions. Companies exhibit unique characteristics in each stage that are important to identify.

At Cyan Capital, we help companies accelerate the discovery process and identify new investors through our non-deal roadshow events and individual meetings. Here is a breakdown of the stages of a public company and unique attributes:

Stage 1: Market Cap Under $100M

When a company is valued at less than $100 million, it is typically in the early stages of development. This phase is higher-risk but offers significant upside for investors if the company is able to execute:

• No Analyst Coverage: At this point, typically there aren’t any analysts covering the stock, so investors rely more on independent research, and typically discover opportunities through connections, events, social media, the internet and conferences.
• Retail-Driven: The investor base is largely made up of retail investors, as institutional investors tend to stay away until more financial data is available and the company has enough liquidity for them to facilitate a position.
• Early Market Discovery: The company is often still proving its business model or technology, or both. In the case of a mining company, they are still in the exploration and feasibility stage. For investors, this means there is a lot of uncertainty around whether the company can deliver on its promises.
• Low Liquidity: Stocks in this stage tend to have lower trading volumes, which can make it harder to buy or sell large quantities of shares without affecting the price.
• High Uncertainty: Whether it’s a new technology, a resource project, or an innovative business model, the success of the company’s underlying operations is still unproven, this is what creates the opportunity to invest at ground floor prices, albeit at a higher risk.

For investors looking at companies in this phase, the potential for growth is significant, but the risks are typically higher. It’s crucial to have a clear understanding of the company’s roadmap, milestones, and past performance.

Stage 2: Market Cap $100M – $300M

As a company grows and hits a market cap between $100 million and $300 million, more attention is drawn to it, but it’s still early in its growth cycle. This stage presents a key inflection point for investors:

• Initial Analyst Coverage: Some investment banks may begin covering the stock, which can provide more detailed research and insights for investors.
• Emerging Financial Results: The company starts to show more meaningful financial results, making it easier to assess its growth potential.
• Increased Liquidity: Trading volumes typically increase at this stage, making it easier for investors to enter and exit positions without major price swings.
• Uplisting Plans: Companies may transition from less prominent exchanges like the Canadian Securities Exchange to more respected ones such as the TSX venture or may begin planning to list on major exchanges like the TSX or NASDAQ. This can provide investors with more confidence and transparency.
• Growing Scalability: For investors, this is where it becomes clearer whether the business model or technology is scalable. As the company begins to meet its goals, the upside potential becomes more tangible.

For investors at this stage, the risks are still present but are starting to be mitigated as the company delivers more consistent results. It’s an exciting time to watch how the company executes its growth strategy.

Stage 3: Market Cap $300M – $500M

When a company reaches a market cap of $300 million to $500 million, it has gained traction in the market, and the investment opportunity begins to change:

• Increased Analyst Coverage: Several analysts are likely covering the stock at this point, which can help investors get a clearer picture of the company’s financial health and prospects.
• Institutional Interest: Institutional investors start taking larger positions in the company, bringing more stability to the stock. For retail investors, this can signal that the company is becoming a more established player.
• Improved Liquidity: The stock becomes even more liquid, making it easier for both retail and institutional investors to trade without drastically impacting the price.
• Earnings Reports and Guidance: Companies in this phase often start providing financial guidance and hold quarterly earnings calls. Investors can gain more insight into the company’s plans and performance, helping them make more informed decisions.
• Shift to Institutional Focus: As more institutions get involved, the company often focuses more on institutional investors rather than retail. This can sometimes lead to greater stability in the stock price, but may also mean less dramatic price swings.

For investors, this is a critical stage where a company’s growth story becomes more tangible. The risk of failure is lower than in earlier stages, but the potential for upside remains strong, especially if the company continues to execute well.

Stage 4: Market Cap $500M – $1B

As a company approaches the $1 billion market cap mark, it has proven its business model and is poised for substantial growth:

• Well-Capitalized for Growth: At this point, the company has raised enough capital to pursue large-scale growth initiatives, whether through acquisitions, expansion, or further development of its core products and services.
• Valuation Based on Performance: Investors now focus on the company’s long-term performance and growth prospects. The stock tends to trade based on fundamentals, such as earnings growth and market share expansion.
• Performance-Driven Trading: Stock price movements are closely tied to how well the company meets or exceeds its growth targets over the medium to long term.
• Dominant Institutional Ownership: Institutions make up the majority of the ownership at this stage, with less retail participation. The increased analyst coverage and institutional interest provide more stability but also higher expectations for continued growth.

For investors at this stage, the company has matured into a stable, high-growth opportunity, but the upside is generally tied to long-term execution rather than speculative potential.

Understanding Each Phase of Growth

For investors, knowing the different stages of a company’s growth journey is key to identifying opportunities at the right time. Whether you’re investing in an early-stage company with high potential or a more established business nearing the billion-dollar mark, understanding the milestones along the way helps you make informed investment decisions.

At Cyan Capital, we are building a network of issuers and investors to accelerate the discovery phase and make it easier for investors and issuers to connect.