What Is a Startup?

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A startup is an ambitious young company. Startups are generally associated with the tech field, but they can operate in any domain, such as solar panels or medical devices. The title is most commonly given to businesses with less than $20 million in revenue and fewer than 80 employees, but being a startup is more a state of mind than a matter of metrics. A startup is founded with the intention of growing quickly, and its culture encourages innovation and drive. Employees at startups often have a level of engagement that is uncommon at conventional jobs, and if their startup evolves into a successful company, the rewards tend to be well worth the extra work.

How to Raise Startup Capital

The founder of a startup often invests the initial capital to get the business off the ground, but if it is true to its startup status and grows rapidly, it will need additional funds before long. Unlike conventional businesses, where ownership tends to be closely controlled by a limited number of key stakeholders, startups often bring in a community of investors. Startup funds can come from venture capital funds or angel investors, individuals who invest in promising early-stage companies. Startup entrepreneurs can also raise capital through structured equity rounds, or by offering the sale of stock at a set price through an arrangement that allows investors to acquire equity in the company. Another common funding strategy for startups is convertible debt, or borrowing money and issuing relatively short-term notes specifying the value and repayment terms.

Examples of Startups

Amazon is perhaps the most famous example of a startup company. It started with a groundbreaking vision of the possibilities of e-commerce, lost plenty of money in its early years through many rounds of investment, and has emerged as an industry leader, changing the ways products are purchased and delivered. Snapchat and Instagram were once startups as well. Their founders developed platforms that generated unusual levels of user engagement, paving the way for stock offerings and acquisition by larger companies.

The Lean Startup Model

Although many of the startups that have garnered media attention have aggressively raised capital through clear, visionary business models, a startup can also be a bootstrap operation with a business model that evolves over time. Lean startups are companies that begin with modest means, using capital as frugally as possible and working through multiple iterations to find a format that works. Lean startup entrepreneurs rely on experimentation more than planning. While all business owners learn by doing and grow from their mistakes, those who embrace the lean startup model build this approach into the very foundations of their companies.

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About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.