Startup entrepreneurs dream of providing society something it needs but hasn’t built yet—at scale—whether they want to change the world or simply make their business vision a reality.

Startups also have another draw for the less motivated: their eye-popping valuations, which might lead to an IPO with an exorbitant return on investment.

What Is a Startup Company?

Startups are small businesses that were created with the goal of creating a one-of-a-kind product or service, bringing it to market, and making it enticing to customers.

Startups are built on innovation, correcting flaws in existing products or inventing totally new categories of goods and services, causing entire industries to change their methods of thinking and conducting business. As a result, many startups are dubbed “disruptors” in their respective industries.

Startups in Big Tech, such as Facebook, Amazon, Apple, Netflix, and Google (together known as FAANG stocks), are well-known, but companies like WeWork, Peloton, and Beyond Meat are also considered startups.

What is the Process of Starting a Business?

On the surface, a startup is similar to any other business. A team of employees collaborates to develop a product that buyers will want to buy. What sets a startup apart from other firms, though, is how it goes about doing so.

Regular businesses simply repeat what has already been done. An existing restaurant can be franchised by a prospective restaurant owner. That is, they follow a pre-existing blueprint for how a company should operate. On the other hand, a company seeks to design a completely new template. In the food business, this may imply meal kits like Blue Apron or Dinnerly that deliver the same thing restaurants do—a chef-prepared meal—but with convenience and variety that sit-down restaurants can’t match. As a result, restaurants can reach a size that individual eateries couldn’t match: tens of millions of prospective customers rather than thousands.

This also highlights another fundamental difference between startups and established businesses: pace and growth. Startups strive to develop concepts quickly. They frequently do so using a process known as iteration, in which they enhance goods based on feedback and usage statistics. A startup may frequently start with a rudimentary skeleton of a product, known as a minimal viable product (MVP), which it will test and improve until it is ready to go to market.

Startups are often aiming to aggressively expand their consumer bases while improving their goods. This allows them to gain larger market shares, which allows them to raise more money, which allows them to expand their products and audience even further.

All of this quick development and innovation is usually in the service of one final goal: going public, whether implicitly or officially. When a firm accepts public funding, it presents an opportunity for early investors to cash out and harvest their profits, a concept known as an “exit” in startup language.

What Is the Best Way to Fund a Startup?

Typically, a startup will raise money in numerous rounds:

• Bootstrapping is a preliminary round in which the founders, their friends, and family invest in the company.
• After then, “angel investors,” or high-net-worth individuals who invest in early-stage enterprises, provide seed money.
• Then there are the Series A, B, C, and D funding rounds, which are primarily headed by venture capital firms and involve investments of tens to hundreds of millions of dollars.
• Finally, a business may elect to go public and raise money from investors through an initial public offering (IPO), a special purpose acquisition company (SPAC), or a direct listing on a stock exchange. A public firm can be invested in by anybody, and startup founders and early supporters can sell their holdings for a large profit.

The Securities Exchange Commission (SEC) feels that their substantial incomes and net worths help shield them from potential loss, hence the earliest phases of startup investment are limited to those with very huge pockets, known as accredited investors.

While everyone aspires to replicate Peter Thiel’s more than 200,000 percent return on his investment in a small firm called Facebook, according to a survey published by UC Berkeley and Stanford researchers, the great majority of startups—roughly 90%—fail. As a result, early stage investors are at risk of witnessing a 0% return on investment.

How Do Successful Startups Achieve Their Goals?

While many businesses fail, not all of them do. Many stars must align for a startup to prosper, and important questions must be answered.

Is the team devoted to their concept to the point of obsession?

• It’s all about how you do it. Even a brilliant concept can fall flat if the team isn’t willing to go above and beyond to support it.

Are there any domain experts among the founders?

• The founders should be well-versed in the industry in which they operate.

Are they prepared to put forth the effort?

• Employees in the early stages of a business are frequently required to work long hours. Startup entrepreneurs work 14-plus-hour days, according to a 2018 survey by MetLife and the US Chamber of Commerce. If a group is unwilling to spend the majority of its waking hours to a project, it will struggle to succeed.

   Why did you come up with this idea, and why now?

• Is this a novel concept, and if so, why haven’t others attempted it? What makes the startup’s team special in its ability to crack the code if it isn’t?

What is the size of the market?

• The scale of a startup’s opportunity is determined by the size of its market. Companies that focus over esoteric technologies may outperform their competitors, but for what purpose? Markets that are too small may result in financials that aren’t large enough to thrive.

If a startup can answer all of these questions, it might have a chance to join the 10% of early-stage companies that survive.

What is the Best Way to Invest in Startups?

Regrettably, startup funding is not generally available to the general public.

You must be an accredited investor to have access to the most desirable early-stage firms or venture capital funds with the highest chance of matching Thiel’s returns. In layman’s terms, this means you earn at least $200,000 a year or have a net worth of at least $1 million, excluding your primary house. If you operate as a registered investment adviser, you may be able to claim accredited investor status regardless of your salary or net worth.

You aren’t completely without options if you don’t fulfil any of those criteria. Crowdfunding services like WeFunder and Seedinvest allow anyone to invest a little amount in a startup in exchange for a share of the company. Seedinvest offers pre-vetted opportunities and a $500 investment minimum, which is 50 times less than the normal check expected from accredited investors interested in getting into the startup investing game.