A startup company or startup is a company with a limited operating history. 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.
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. 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.
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 start ups. Some new funding opportunities are also developing in crowd funding.
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). Often, 100% of a small startup company’s value is based on its intellectual property. As such, it is important for technology oriented start up companies to develop a sound strategy for protecting their intellectual capital as early as possible.
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.
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.