A startup is a business that is launched to change a familiar industry or to create one from scratch. Startups come in both local and international forms. Their goal may be to create a new product, to improve the functions of an existing service or production unit, or to improve sales or services in a particular area. Besides launching a project, one of the important tasks of the owner is to attract investments for further scaling and entering a large market.
What Startups Are and How They Differ From Other Types of Business
An online school, कसीनो, a shopping app, or a coffee shop around the corner aren’t startups – their business models are clear and have been tried many times. For a business to be a startup, it has to meet several parameters. Among them: a unique business model, a well-defined startup and market entry phase, and the need to attract outside investment.
A startup always relies on new technology, looks for new ways to sell, and sometimes offers a radically new positioning for the market.
A startup is associated with a specific business mindset. Often such projects are built according to the scheme: “invent, design, develop a prototype, pivot, and sell on.” Sometimes the owners stay in the startup, but in most cases they still scale the project with raised funds rather than their own.
Let’s list the signs of a startup:
- The uniqueness and novelty of the project idea and/or the way it’s implemented.
- The need to attract outside investment.
- Short, set deadlines for launching the project.
There are several myths about the startup team. For example, it’s believed that it’s always small and young. In reality, it can be large and experienced. There may be not only in-house specialists, but also external consultants who are engaged in a part-time format.
Startup teams have mandatory functions: they deal with sales, product creation, investor and press communications. Attracting investment is an important process for a startup. When a startup has gone from idea to MVP, it goes out to pitch. This is a brief presentation of the business idea in front of potential investors.
How Startups Attract Investment
When a startup is fully developed and ready for financing, it starts looking for investment. Here is what the process looks like step by step:
- Drawing up a portrait of a potential investor who will be interested in the project. This is necessary in order to adapt the presentation of the project to him in the future.
- Study of various ways of attracting investments: conditions of financing from banks, grants, and participation in acceleration programs and startup contests.
- Preparation of a presentation and a proposal for an investor.
- Searching for ways to contact potential investors.
- Verification of open information on investors and carrying out meetings with them.
- The process of obtaining investments is usually divided into rounds.
Pre-seed: founders invest their own money, ask for money from parents and friends. This stage is called FFF: Family, Friends, Fools. Fools refers to investors with no experience.
Seed: Seed investments. This money is used to refine the main product, look for Product-Market Fit, and make the first sales.
Round A: At this stage, the company already has a finished product and can attract the interest of investors. The money is spent on scaling sales.
Round B: the company can raise funds not only for sales, but also, for example, for geographic expansion. In the future, rounds may be repeated.
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