What is a 'Startup'

A startup is a company that is in the first stage of its operations. These companies are often initially bankrolled by their entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand. Due to limited revenue or high costs, most of these small-scale operations are not sustainable in the long term without additional funding from venture capitalists.

BREAKING DOWN 'Startup'

In the late 1990s, the most common type of startup company was a dotcom . Venture capital was extremely easy to obtain during that time due to a frenzy among investors to speculate on the emergence of these new types of businesses. Unfortunately, most of these internet startups eventually went bust due to major oversights in their underlying business plans, such as a lack of sustainable revenue. However, there were a handful of internet startups that did survive when the dotcom bubble burst. Internet bookseller Amazon.com and internet auction portal eBay are examples of such companies.

Startups Legal Structure

Startups need to consider what legal structure best fits their entity. A sole proprietorship is suited for a founder who is also the key employee of a business. Partnerships are a viable legal structure for businesses that consist of several people who have joint ownership; they are typically straightforward to establish. Personal liability can be reduced by registering a startup as a limited liability company.

Considerations for Startups

Startups need to invest time and money into research. Market research helps determine the demand of a product or service. A startup requires a comprehensive business plan outlining mission statement, future visions and goals as well as management and marketing strategies.

Startups must decide whether their business is conducted online, in an office/home office or store; this depends on the product or service being offered. For example, a technology startup selling virtual reality hardware may need a physical storefront to give customers a face-to-face demonstration of the product's complex features.

Funding for Startups

Crowdfunding allows people who believe in a startup to contribute money via a crowdfunding platform. Startups often raise funds using venture capitalists. This is a group of professional investors that specialize funding startups. Silicon Valley in California is known for its strong venture capitalist community and is a popular destination for startups.

Startups may use a small business loan to commence operations. Banks typically have several specialized options available for small businesses; a microloan is a low interest, short-term product tailored for startups. To qualify, a detailed business plan is often required.

A startup may be funded using credit. A flawless credit history may allow for a line of credit to fund a startup. This option carries the most risk, particularly if the startup is unsuccessful.

RELATED TERMS
  1. Lean Startup

    The lean startup is a method used when founding a new company ...
  2. Death Valley Curve

    The death valley curve is a phrase that refers to the time from ...
  3. Value Network

    The connections among individuals or organizations that benefit ...
  4. Jumpstart Our Business Startups ...

    An act signed into law on April 5, 2012 that allays the regulations ...
  5. Option Pool

    An option pool is stock in a startup that is set aside to be ...
  6. Incubator Firm

    An incubator firm is an organization that fosters early-stage ...
Related Articles
  1. Small Business

    5 Questions to Ask Before Investing in a Startup

    Investing in start-ups can be profitable but investors need to do their homework before diving in.
  2. Small Business

    Declining Venture Capital Offset by Digital Economy

    While the amount of venture capital may be on the decline this new trend certainly does not seem to present a problem for tech startups in today's growing digital economy.
  3. Small Business

    Why Are Startups Going International?

    Expansion into international markets, if it occurs, is the final stage of a startup's evolution. Lately, though, the opposite has been happening; international expansion now occurs fairly early ...
  4. Small Business

    Angel Investing vs. Crowdfunding: How to Raise Money for Your Startup?

    Angel investing and crowdfunding are two very different options startups can use to get the funding they need.
  5. Small Business

    New Tech Capitals Emerging In Various U.S. States

    While Silicon Valley has long been recognized as the home of tech giants, an increasing number of cities around the country are attracting tech startups.
  6. Small Business

    Startups: Tech Giants' Next M&A Targets? (AAPL, GOOGL)

    Watch for large-cap tech sector companies to announce acquisitions of startups, as valuations for unicorns and other overvalued startups continue to decline.
  7. Small Business

    VC Funding for Tech Startups is Slowing: Here's Why

    Two reports released last week provide further proof that the VC funding market for startups is slowing down.
  8. Small Business

    Choose The Best Way To Fund Your Startup: Are Loans Or Equity Right For You?

    Which is better for a startup - debt or equity? Here are the advantages, challenges, and criteria.
  9. Investing

    The Tech World Sees Number of “Unicorns” Boom

    As the number of tech startups valued over $1 billion begins to level out, we evaluate the changing nature of private valuations.
  10. Insights

    Top 7 Fastest-Growing Startups in Austin

    Austin has become one of the hottest hub for startups. Austin has everything entrepreneurs need to make their visions come to life.
RELATED FAQS
  1. What exactly is a startup?

    Do you want to form your own startup when you have a new business idea? Here is everything you need to know about the startup. ... Read Answer >>
  2. What is the best way to calculate profitability for startups?

    Understand how evaluating profitability at multiple levels is beneficial for startups, including learning the calculation ... Read Answer >>
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center