The term “startups” pertains to a new business in the early stages of development. Typically, startups are founded by one or multiple entrepreneurs who seek to develop a new product or service that they feel will have great demand. Usually, startup proceeds are raised by angel investors, or seed capital, in return for shares in the business. In some cases, venture capitalists provide start-up capital.
A new businesses needs careful planning and research to get started, as the business may face certain challenges along the way. One of the most common challenges faced by startups is determining their product or service to offer. Usually, this task is taken care of by an experienced business analyst. Analysts examine the market, determine a unique selling proposition (USP), and develop a business plan. In some cases, a business can use technology to help sort through existing data and identify key opportunities.
Another challenge facing startups is raising venture capital. Venture capitalists look for a high risk, high value company. For this reason, it’s not uncommon for startups to seek venture capital from a wide range of sources, including traditional venture capitalists, angel investors, government funds, and third party funding sources such as personal savings and stock loans. In some cases, startups are able to raise venture capital on their own through an angel investor network. However, most of these startups do not have the resources to fund their own operations once the business has launched. Most venture capitalists provide seed money only, meaning the company must rely heavily on cash.
While many startups are successful, there are also many failures. One of the most common reasons for startup failure relates to legal structure. In the United States, there are typically two basic models of business law and regulation: limited liability and public company law.
Limited liability companies operate under a set of rules which limit the liability of the owners themselves. Public companies, by contrast, operate in a more open environment. The rules associated with these businesses vary by jurisdiction, but in general, they require the business to register, buy insurance, regularly file with government agencies, pay taxes, and issue periodic reports to shareholders that provide financial information about the health of the business. Many startups choose to operate in a private company setting because operating in a jurisdiction without a legal structure is both complex and expensive.
As you can see, the startup process can be an incredibly challenging experience for entrepreneurs. Fortunately, many startups succeed. But even when a business succeeds, it doesn’t always result in success for the entire organization. Some startups fail because they are unable to implement a successful business model. Regardless of what type of startup you are considering, if you’re going to participate in the entrepreneurial marketplace, you need to be prepared to take some risk.