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.

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