Startup company

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A startup company (startup or start-up) is an entrepreneurial venture which is typically a newly emerged business that aims to meet a marketplace need by developing a viable business model around a product, service, process or a platform. A startup is usually a company designed to effectively develop and validate a scalable business model.

Start-ups have high rates of failure, but the minority of successes include companies that have become large and influential.

Typical early tasks in forming a startup are assembling a team to secure skills, know-how, financial resources, and other elements to conduct research on the target market. A startup will then begin building a first minimum viable product (MVP), a prototype, to validate, assess and develop the new ideas or business concepts. A Shareholders' agreement (SHA) is often signed to confirm the commitment, ownership and contributions of the founders and investors and to deal with the intellectual properties and assets that may be generated by the startup. Business models for startups are generally found via a "bottom-up" or "top-down" approach. A company may cease to be a startup as it passes various milestones, such as becoming publicly traded on the stock market in an Initial Public Offering (IPO), or ceasing to exist as an independent entity via a merger or acquisition. Companies may also fail and cease to operate altogether, an outcome that is very likely for startups, given that they are developing disruptive innovations which may not function as expected and for which there may not be market demand, even when the product or service is finally developed. Given that startups operate in high-risk sectors, it can also be hard to attract investors to support the product/service development or attract buyers.

The size and maturity of the startup ecosystem where the startup is launched and where it grows have an effect on the volume and success of the startups. The startup ecosystem consists of the individuals (entrepreneurs, venture capitalists, angel investors, mentors); institutions and organizations (top research universities and institutes, business schools and entrepreneurship programs operated by universities and colleges, non-profit entrepreneurship support organizations, government entrepreneurship programs and services, Chambers of commerce) business incubators and business accelerators and top-performing entrepreneurial firms and startups. A region with all of these elements is considered to be a "strong" startup ecosystem. Some of the most famous startup ecosystems are Silicon Valley in California, where major computer and Internet firms and top universities such as Stanford University create a stimulating startup environment, Boston (where Massachusetts Institute of Technology is located) and Berlin, home of WISTA (a top research area), numerous creative industries, leading entrepreneurs and startup firms.

Investors are generally most attracted to those new companies distinguished by their strong co-founding team, a balanced "risk/reward" profile (in which high risk due to the untested, disruptive innovations is balanced out by high potential returns) and "scalability" (the likelihood that a startup can expand its operations by serving more markets or more customers). Attractive startups generally have lower "bootstrapping" (self-funding of startups by the founders) costs, higher risk, and higher potential return on investment. Successful startups are typically more scalable than an established business, in the sense that the startup has the potential to grow rapidly with a limited investment of capital, labor or land. Timing has often been the single most important factor for biggest startup successes, while at the same time it's identified to be one of the hardest things to master by many serial entrepreneurs and investors.

Startups have several options for funding. Venture capital firms and angel investors may help startup companies begin operations, exchanging seed money for an equity stake in the firm. Venture capitalists and angel investors provide financing to a range of startups (a portfolio), with the expectation that a very small number of the startups will become viable and make money. In practice though, many startups are initially funded by the founders themselves using "bootstrapping", in which loans or monetary gifts from friends and family are combined with savings and credit card debt to finance the venture. Factoring is another option, though it is not unique to startups. Other funding opportunities include various forms of crowdfunding, for example equity crowdfunding, in which the startup seeks funding from a large number of individuals, typically by pitching their idea on the Internet.

This page was last edited on 24 June 2018, at 08:32 (UTC).
Reference: under CC BY-SA license.

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