What is a Start-up Company?
A start-up company is an Entrepreneurial venture. Start-ups are usually fast-growing businesses and are working in a technological background, that are newly transpired and aim to meet the marketplace need by developing a viable business model around an innovative product, service, process or a platform.
Start-ups come in all forms and sizes. The size and maturity of the start-up ecosystem where the startup is launched and where it grows have an effect on the volume and success of the Start-ups.
According to Bill Gross, The Top 5 Factors in success across more than 200 Companies are:
- Timing 42%
- Team / Execution 32%
- Idea “Truth” Outlier 28%
- Business Model 24%
- Funding 14%
A company may cease to be a start-up as it passes various milestones such as becoming publicly traded on the stock market in an IPO (Initial Public Offering).
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. 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. The idea of these platforms is to streamline the process and resolve the two main points that were taking place in the market before. The first problem was for startups to be able to access capital and to decrease the amount of time that it takes to close a round of financing. The second problem was intended to increase the amount of deal flow for the investor and to also centralize the process.
When investing in a startup, there are different types of stages in which the investor can participate. The first round is called seed round. The seed round generally is when the startup is still in the very early phase of execution when their product is still in the prototype phase. At this level angel investors will be the ones participating. The next round is called Series A. At this point the company already has traction and may be making revenue. In Series A rounds venture capital firms will be participating alongside angels or super angel investors. The next rounds are Series B, C, and D. These three rounds are the ones leading towards the IPO.