Small Business

Growth Categories of Small Firms

Lifestyle, Middle-market and High-potential Companies

By: Osnabrugge, M.V. and Robinson R.J., authors of Angel Investing


Growth Categories of Start-Up Firms High-Growth Business Development Angel Investing Bootstrapping Methods Venture Financing Business Angels Venture Capital Firms Business Angels: How To Reach Them Small Business, Small Companies; Three Types of Start-Up Firms (from Angel Investing)


  • 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.

  • 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.

  • 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.