We often hear the term “startup” in the world of entrepreneurship in particular and business in general.
The term startup company refers to a project launched by entrepreneurs looking forward to developing a product or service that they believe meets an urgent need in the market, or provides an effective solution to a problem and thus meets a growing demand in the market.
Startups often start with modest capital and high costs, they (Start-Ups) face many challenges in their infancy in terms of obtaining the necessary funding to grow their operations and expand their presence in the market.
Through this piece, Entrepreneurship KSA Magazine sheds light on the concept of startups and highlights the following ideas:
- What is the meaning of a startup company and what is the difference between it and a traditional project?
- How to understand the nature and structure of a startup?
- Special considerations for start-up companies.
- Understanding the nature of venture capital | Supporting and financing startups.
- The difference between going to the bank and going to the investment financing side.
- What is the meaning of a startup company and what is the difference between it and a traditional project?
Perhaps what distinguishes the term Startup from any other project is that the Startup aims to achieve accelerated growth without this growth being accompanied by a linear (steady) increase in costs?
How do?
Well, let’s simplify the concepts more… There is no doubt that growth means the possibility of expansion and gaining a larger market share, ie receiving more customers. But the real challenge, if successful, is to reconcile the ability to receive and serve more clients while not incurring significant operational expenses. Maximizing revenues and reducing costs is the equation that all companies and commercial projects aspire to achieve.
Successful Startup Achieves Linear Growth, Is this the only feature?
No, the startup company is known for its lack of a crystallized and clear business model. Rather, its efforts in its early days are focused on developing a product that the entrepreneur believes is required in the market.
You can imagine the difference, for example, between a project to build a hotel with a certain capacity and the high cost associated with that, and an electronic platform project through which it is easy to search, inquire and book rooms, like (Booking.com) or ( Airbnb.com). In the second case, this platform serves hundreds of thousands or even millions of users without accompanying a high cost that doubles with the increase in the number of users!
This is the ideal case for a startup that climbs the ladder of success by a rocket but do not be too optimistic, it is not at all as easy as you imagine. The path to success in the world of entrepreneurship is full of challenges and risks from all sides.
Entrepreneurship risks … Understand the nature and structure of a startup
The term “startup” is given to companies and entrepreneurial projects that focus their efforts on developing a product or service that the entrepreneur wants to bring to the market.
Often these start-ups lack a fully crystallized business model, not to mention enough capital to move to the advanced stages of the business world. Hence, based on the aforementioned, most startups are created by the entrepreneurs themselves, bearing a high risk of failure of their project to survive.
Many start-up companies sometimes turn to relatives and friends to obtain the necessary funding for the continuation of the project, but most of them seek to win the love of investment and financing companies concerned with supporting entrepreneurship!
The term “Seed Capital” is common in the entrepreneurial community, meaning the capital that is invested to form and launch the start-up company, and it is often brought from the founder of the company and the surrounding circle of friends, relatives, and acquaintances.
On the other hand, in-depth market research helps determine the percentage of demand for a product or service in the market, while the importance of a comprehensive business plan stems from clarifying the startup’s mission, vision, and goals as well as the company’s management and marketing strategy.
The start-up capital is distinguished from other investment capital by the following features:-
(Seed capital) is the money that is brought in to develop an entrepreneurial idea and turn it into a real product or service.
This capital covers the costs associated with presenting and pitching the idea.
Once the necessary capital is secured and the project is launched, start-ups start seeking additional funding.
Some (Seed Capital) may come from experienced individual investors with a proven track record of investing in successful entrepreneurial ventures.
Special considerations for start-up companies … Location of the Start-up
The start-up company, first of all, has to decide on the project whether it is online or requires desktop work.
The location of the startup depends mainly on the product or service provided… For example, a pilot project that develops computer supplies and tools for technical devices requires an office to explain and present product specifications to interested visitors face to face!
Legal structure
Startups need to take into account the optimal legal structure that matches the nature of their project. The sole proprietorship is more suitable for a founder who plays a vital role in the startup.
Partnerships also form a familiar legal structure for a start-up company, consisting of several people who share ownership of the project. It is worth noting that personal liability can be reduced to the maximum extent possible by registering the company as a limited liability company.
Finance Resources
In their early days, startups often seek funding by turning to relatives and friends, before turning to venture capitalists.
In recent years, the concept of crowdfunding has become popular, as the owner of the entrepreneurial project proposes to establish a private page online begging for a donation to fund the project from someone who believes in the feasibility of the project and the idea, especially if the project has a mission and a social message that reflects positively on the environment and society as a whole!
Understanding the nature of venture capital | Supporting and financing startups
Venture Capitalists are the private investment body that gives promising startups the capital they need to help them achieve accelerated growth in return for sharing profits at a pre-agreed ratio.
This may be embodied by financing start-up companies directly or supporting small companies that aspire to expand and grow without being able to enter certain markets and conduct their operations in them.
Financing and venture capital agencies
Such institutions and investment bodies risk investing in some promising start-up companies, believing that these companies will generate large profits if they achieve the desired success!
In the same context, these institutions live with real fears related to the risks of failure due to the large margin of uncertainty associated with entrepreneurial projects in general, no matter how strong and required the product idea.
Is support for startups limited to funding only?
Some investment finance institutions also provide other advantages to startups by providing advice and advice, managing human resources, and providing office incubators for the work team as well!
In return, given the high risks involved like the startup, the founders of the startups pledge to provide a share of the company’s shares to the funder.
Moreover, a startup company achieving steady growth and staying afloat in the market often results in an investor in Venture Capitalists winning a permanent seat on the company’s board of directors later.
What is the difference between going to the bank and going to the investment finance side?
The answer, in short, is as follows:
The money available in the investment financial institution is dedicated to financing projects, unlike banks that often provide credit and loan services to individuals and institutions in general without taking into account the pilot projects.
The bank offers financing in the form of loans that require a certain interest rate, and so loans that require guarantees, and assets that may not be available to the entrepreneur looking for financing according to easy terms!
