What is a startup
The concept of “startup” has come to us for a long time, and in recent years it has become increasingly popular. Many books are published annually on this subject, new sites and communities are being created. Many, and especially those who are thinking about their own business, are interested in knowing what a startup is and how it differs from an ordinary young company?
Concept of startup
The word “startup” is formed from the English expression “start-up”, which means “to run.” A start-up is understood as an organization seeking to implement a new, bold idea and offer interesting products. As a rule, a startup is represented by a young, newly established company, although it may be born within the framework of the existing company. Neither aggressive marketing nor powerful PR are typical for him.
Most often, startups are associated with the IT industry, although they are not limited to this industry. The first startup company is Hewlett-Packard Corporation, founded in 1939 by two students yesterday. Today the whole world knows about this company.
The following features are characteristic of startups that distinguish them from other young companies:
High speed development. The project runs in the shortest possible time, sometimes in less than six months.
Having an innovative idea. At the core of the business should be such an idea, which has never been implemented before. Novelty and utility – that in the future should attract customers.
Security of funds. Startup attracts investment at the time of its inception. Investors in this case invest money in an idea, and not in a successful company.
Low chances of success. Only 30% of startups have been on the market for more than a year, and only 15–20% have existed for 2 years or more. This is due to the high risk of unsuccessful implementation of a new idea.
The purpose of creating a startup is in most cases selling it by entering an IPO. There are cases when a startup manages to sell his project for millions of dollars (for example, Summly application).
The presence of a team. A startup rarely rises by one person. A team of friends, partners or classmates with well-coordinated teamwork has a higher chance of success.
Stages of development
The startup project goes through 5 main stages during its development:
Seed stage. At the first stage, the market is studied, a plan of action is drawn up, preparatory activities and first negotiations with interested parties are held.
Start (Startup stage). The moment of launch and the first weeks of work is the most critical period in the life of a startup.
Growth (Growth stage). Growth is understood to mean the position of a startup in which he has already taken a stable position in the primary market and is confidently moving toward achieving the goals outlined in the business plan.
Expansion (Expansion stage). When the plan to conquer the primary market is almost complete and business expands to other markets, including through the purchase of other start-ups, we can talk about expansion.
Exit stage. The exit means the exit from the project of the initial investors in the person of venture funds, and the further sale of the project to strategic investors. In case of failure, the “exit” is the closure of the business.
Investing in startups
Investing in startups carries certain benefits. This has been understood not only in Europe and the USA, but also in Russia. One of the keys to success, from the point of view of investors, is the young age of startups (most of them are less than 25 years old), when they are not burdened with family or work, and can fully devote themselves to working on the project. Such investments belong to venture capital, since they are characterized by high risks and the shortest payback periods. Most often, investors are represented by venture funds or business angels. Funds are most often interested in short-term cooperation (until the project is sold), angels – in the long-term.
Note! Today, there are special services that help startups and investors in finding each other. A number of companies independently search for interesting projects, requiring only a clear description of their plans from candidates. Search for startups are engaged, including, Google and Yandex. Therefore, having formulated your ideas properly, it is not so difficult to find an investor.
Today, start-up projects represent a whole industry. In the future, it is expected that interest in them will only increase. However, one should not forget that, according to various estimates, from 5 to 10% of projects become truly successful. The most promising sectors for the next few years are health, financial services, consumer goods and services, green technologies, medical equipment, biopharmaceuticals, media projects, social networks, semiconductors and telecommunications.