Startup company

A startup company or startup is a company, a partnership or temporary organization designed to search for a repeatable and scalable business model.^[1] These companies, generally newly created, are in a phase of development and research for markets. The term became popular internationally during the dot-com bubble when a great number of dot-com companies were founded.

Lately, the term startup has been associated mostly with technological ventures designed for high-growth. Paul Graham, founder of one of the top startup accelerators in the world, defines a startup as: "A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth." ^[2]

Evolution of a startup company

Startup companies can come in all forms, but the phrase "startup company" is often associated with high growth, technology-oriented companies, many of which seek to disrupt an existing market^[3] or to create a new market. Investors are generally most attracted to those new companies distinguished by their risk/reward profile and scalability. That is, they have lower bootstrapping costs, higher risk, and higher potential return on investment. Successful startups are typically more scalable than an established business, in the sense that they can potentially grow rapidly with limited investment of capital, labor or land.

Startup Financing Cycle

Startups encounter several unique options for funding. Venture capital firms and angel investors may help startup companies begin operations, exchanging cash for an equity stake. In practice though, many startups are initially funded by the founders themselves. Factoring is another option, though not unique to startups. Some new funding opportunities are also developing in crowd funding.^[4]

A critical task in setting up a business is to conduct research in order to validate, assess and develop the ideas or business concepts in addition to opportunities to establish further and deeper understanding on the ideas or business concepts as well as their commercial potential.

If a company's value is based on its technology, it is often equally important for the business owners to obtain intellectual property protection for their idea. The newsmagazine The Economist estimated that up to 75% of the value of US public companies is now based on their intellectual property (up from 40% in 1980).^[5] Often, 100% of a small startup company's value is based on its intellectual property. As such, it is important for technology oriented startup companies to develop a sound strategy for protecting their intellectual capital as early as possible.^[6]

Startup companies, particularly those associated with new technology, sometimes produce huge returns to their creators and investors – a recent example of such was Google, whose creators are now billionaires through their share ownership. However, the failure rate of startup companies is very high.^[7]

While there are startup businesses created in all types of businesses, and all over the world, some locations and business sectors are particularly associated with startup companies. The Internet bubble of the late 1990s was associated with huge numbers of internet startup companies, some selling the technology to provide internet access, others using the internet to provide services. Most of this startup activity was located in Silicon Valley, an area of northern California renowned for the high level of startup company activity:

The spark that set off the explosive boom of “Silicon startups” in Stanford Industrial Park was a personal dispute in 1957 between employees of Shockley Semiconductor and the company’s namesake and founder, Nobel laureate and co-inventor of the transistor William Shockley... (His employees) formed Fairchild Semiconductor immediately following their departure... After several years, Fairchild gained its footing, becoming a formidable presence in this sector. Its founders began to leave to start companies based on their own, latest ideas and were followed on this path by their own former leading employees... The process gained momentum and what had once began in a Stanford’s research park became a veritable startup avalanche... Thus, over the course of just 20 years, a mere eight of Shockley’s former employees gave forth 65 new enterprises, which then went on to do the same...^[8]

A company may cease to be a startup as it passes various milestones,^[9] such as becoming profitable, or becoming publicly traded in an IPO, or ceasing to exist as an independent entity via a merger or acquisition. Companies may also fail and cease to operate altogether. Recently the patent assets of these failed startup companies are being purchased by what are derogatorily known as "Patent trolls" who then take the patents from the companies and assert those patents against companies that might be infringing the technology covered by the patent.^[10]

Startup Culture

Startups utilize a casual attitude in some respects to promote efficiency in the workplace, which is needed to get their business off of the ground. In a 1960 study, Douglas McGregor stressed that punishments and rewards for uniformity in the workplace is not necessary, as some people are born with the motivation to work without incentives.^[11] This removal of stressors allows the workers and researchers to focus less on the work environment around them, and more at the task at hand, giving them the potential to achieve something great for their company.

This culture has evolved to include larger companies today aiming at acquiring the bright minds driving startups. Google, amongst other companies, has made strides to make purchased startups and their workers feel right at home in their offices, even letting them bring their dogs to work.^[12] The main goal behind all changes to the culture of the startup workplace, or a company hiring workers from a startup to do similar work, is to make the people feel as comfortable as possible so they can have the best performance in the office.

Co-Founders

Co-Founders are people involved in the cultivation of startup companies. Anyone can be a Co-Founder, and an existing company can also be a Co-Founder, but frequently Co-Founders are entrepreneurs, hackers, venture capitalists, web developers, web designers and others involved in the ground level of a new, often high tech, venture.

There is no formal, legal definition of what makes somebody a Co-Founder. The right to call oneself a Co-Founder can be established through an agreement with one's fellow Co-Founders or with permission of the board of directors, investors or shareholders of a startup company. When there is no definitive agreement, disputes about who the Co-Founders were can arise. One well-known example of a dispute over who can be called a Co-Founder can be observed in the story of a lawsuit against Elon Musk by a Co-Founder of Tesla Motors in which it was alleged that he did not have the right to consider himself a Co-Founder merely because he provided a large amount of capital and was instrumental in saving the company from bankruptcy.^[13]

Finding a co-founder may be a complicated issue. Agreeing on the terms and conditions of partnerships, exit strategies and compensations from the beginning, improves the understanding of what is expected of each party.^[14]

Due to the rise of tech startups, Technical co-founders (programmers) are specially sought after. Some co-founder dating sites are now available online to fill this gap.^{[citation needed]}

Internal startups

Large or well-established companies often try to promote innovation by setting up "internal startups", new business divisions that operate at arm's length from the rest of the company. Examples include Target Corporation (which began as an internal startup of the Dayton's department store chain) and threedegrees, a product developed by an internal startup of Microsoft.^[15]

See also

References

External links

• Access to Capital: Fostering Job Creation and Innovation Through High-Growth Startups: Hearing before the Subcommittee on Economic Policy of the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Twelfth Congress, First Session ... July 20, 2011
• Startup Indonesia Startupnesia

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