Before we delve into how to identify good growth stage companies for investment let's make sure we are on the same page. The early or growth phase of a business can actually be split into three stages of development: seed stage, early stage, and growth stage. And they are by no means the same thing. Seed stage companies are at a very early stage in their development, where they only have an idea that they want to bring to the market. Once the company has designed a viable product, and carved out the target market but is not yet in operation, it is in the development stage and becomes an early-stage company. And finally, a growth stage company has a proven product in the market, and is focused on scaling revenues and generating profits.

Companies in such an early stage of their development are often startups and will experience high growth. You might also come across the term "growth-stage startups," and for the purpose of this article, we consider this to be the same as growth-stage companies.

Investing in such early-stage companies is very different from investing in companies in later stages. Later stage companies are slightly more mature businesses and will have a more robust business plan carved out, an existing customer base and market share; even if this is still small.

The investment risks differ for investing in each business lifecycle stage, and therefore investors need to consider different factors when making these investment decisions.