How many startups fail and why?
As of March 2021, only 80% of startups survived after one year. The Small Business Administration (SBA) defines a "small" business as one with 500 employees or less. According to business owners, reasons for failure include money running out, being in the wrong market, a lack of research, bad partnerships, ineffective marketing, and not being an expert in the industry. Ways to avoid failing include setting goals, accurate research, loving the work, and not quitting.
Why are there so many startups in Silicon Valley?
Silicon Valley, located in the South San Francisco Bay Area of California, is a global center of technological innovation. Many of the reasons for this region's success have to do with the social and cultural aspects of the tech community that has grown there. Similar markets and industries tend to become concentrated in a particular area. The entrepreneurial environment of Silicon Valley is characterized by innovation, collaboration, and risk-taking. It provides the essential motivational framework required for tech startups. Local opportunities and insights, legal support, and joint industry strength are other reasons that there are so many startups in Silicon Valley.
How do I make the most of the stock options as a startup employee?
Equity is a great perk of working for a startup, but employees are often confused about the best way to maximize the equity they’re given. One of the key things to understand when it comes to equity is that it takes time for your options to vest. The typical vesting schedule for most startups is four years, including a one-year cliff. Another important thing to keep in mind is your company’s exit strategy. If it appears to be headed toward an IPO, you may want to have a plan in place for exercising your options. Perhaps the most crucial factor when it comes to equity decisions is timing. Choosing to exercise options after an exit is often the simplest way to cover costs and manage tax liabilities.
How do I exercise my stock options without paying out of pocket?
A common way to finance the purchase of shares is by borrowing funds from friends and family. Another popular form of financing is a personal loan. This can be a good option if you’d like to borrow a larger amount of money and if you’re comfortable committing to a monthly repayment schedule. However, it’s worth noting that the interest paid on personal loans can make exercising your options much more expensive. If you’re hoping to cover your costs without having to borrow money, selling some of your shares on a secondary market can help you get the funds you need.
How do I raise seed capital for my startup?
Seed capital is the initial investment into a business provided by venture capitalists or angel investors to help it grow. Many investors that provide seed capital are involved in the business in more than just a financial way. When seeking seed capital, a business must be prepared with a solid business plan, avenues for growth, and cost and revenue projections. Networking is an important part of obtaining seed capital, and mentorship programs such as incubator firms help as well. Crowdfunding is an increasingly popular and quicker route to obtaining seed capital.
Sweat equity is the unpaid labor employees and cash-strapped entrepreneurs put into a project. Homeowners and real estate investors can use sweat equity to do repairs and maintenance on their own rather than pay for traditional labor. In cash-strapped startups, owners and employees typically accept salaries that are below their market values in return for a stake in the company.
A lean startup is a method used to found a new company or introduce a new product on behalf of an existing company. The lean startup method advocates developing products that consumers have already demonstrated they desire so that a market will already exist as soon as the product is launched.
Jumpstart Our Business Startups (JOBS) Act
The JOBS Act loosens regulations on reporting, oversight, and advertising for companies trying to raise investor funds. The law allows companies with under $1 billion in revenue to disclose less information to investors. The law allows non-accredited investors to invest in startups through crowdfunding and "mini-IPOs." The intended goal of the JOBS Act was to revitalize the small business sector after the financial crisis, help entrepreneurs start businesses, grow current businesses, and put Americans back to work.
The development stage is one of the stages in the life cycle of a new company. The development stage is considered a very difficult stage and is characterized by a high probability of failure. For investors with a high capacity and willingness to bear risk, development-stage companies can occasionally offer spectacular returns.
A drip feed is the process of slowly advancing funds or capital in stages rather than injecting a large initial lump sum. When a venture capitalist contributes through a drip feed, the firm operates with little surplus capital, so the startup acquires money as the need arises. A drip feed can help mitigate the risk of losing an entire investment in case the startup fails.
Soft metrics are non-traditional measures used to assess the performance of a company. They are typically designed at the discretion of the company or analyst in question, and can therefore prove difficult to independently verify. Some investors will be reluctant to trust soft metrics due to the ease with which they can be manipulated to produce desired results.
Bureau of Labor Statistics. "Survival of Private Sector Establishments by Opening Year." https://www.bls.gov/bdm/us_age_naics_00_table7.txt
Small Business Administration. "2020 Small Business Profile." https://cdn.advocacy.sba.gov/wp-content/uploads/2020/06/04144224/2020-Small-Business-Economic-Profile-US.pdf