What is a Startup?
Although the term “startup” has become so ubiquitous it’s bandied about without a hyphen (shocking), few people we’ve asked seem to agree on what a startup is. The popularized fairytale of startups begins with “Once upon a time in a garage…” and ends with “They made millions of dollars and lived happily ever after.” Few startups grow to Google or Facebook level proportions, but one thing is very clear from even the fairytale version of reality: startups are defined by their ability to grow rapidly: in team size, user base, and (optimally) profit.
By definition, startups are starting something, and usually, we think of startups as starting something new, or at least providing a unique spin on an existing product or service. Startups are typically fairly small; most startups have a team of 5 or more people, and run off of roughly $1 million in funding, which we’ll discuss in more detail below.
Angels and VCs and Bootstrapping… Oh my!
Whenever the founders of a startup decide they have an idea they want to create, they have to consider where they’ll be working, who they’ll be working with, and what they’ll need to make their vision a reality. All of these questions really boil down to: where is the money coming from? Startups have three options:
(1) Bootstrapping: “Bootstrapping” simply indicates that the founders are funding the company themselves. The reality of this is that founders have harassed their family and friends enough to provide some initial funds, or that the founders have left a relatively high-paying and stable job to give everything they’ve got to make their idea a success.
(2) Angels: Angel investors are individual investors or a small group of investors that can provide initial funding to startups in exchange for some equity. Since angels are usually only accountable to themselves, they often invest in startups they personally feel connected to, whether because of the problem the startup is trying to solve is something they also feel strongly about or because they know the people involved in the startup on a more personal level. Angel investors are often entrepreneurs themselves or have played a role in other startups previously.
(3) Venture Capitalist (VCs): VCs are institutional investors that manage clients’ assets and invest them in early stage startups in exchange for some equity. They can typically afford to invest more than angel investors, but contrary to popular belief, only 1-2% of startups are VC-funded. VCs have to think big-picture and are generally more interested in startups addressing large scale problems. Find out more about more in this nifty video.
VCs and angels play an important role outside of simply financing early stage startups; they also provide valuable advice and direction to the company. As you might imagine, having too many VCs and angels taking an active role in the direction of the company might not always yield the best results, but generally because of their experience and network, they are valuable resource for startups to gain a stronger foothold in their industry.
Part of the reason why reconciling what qualifies a company as a “startup” is so difficult is because boiling down a “startup” into its number of employees or how many years it’s been around would be oversimplifying what it means to be a “startup.” Walking into a startup office—whether it’s in the snazzy office space in a high rise or a somewhat dingy but very cozy basement—you’re hit with this wave of optimism and energy. Everyone’s working hard on something incredibly complex, and what’s more impressive: everyone is loving it. The undercurrent in all startups is their passion and enthusiasm for their new product or service. We’re excited to share interviews with startup junkies and entrepreneurs and share a closer look at the fascinating world of startups. To make sure you don’t miss a post — sign-up for email updates!