¿What is a startup?
Startup is a newly created company that markets products and / or services through the intensive use of information and communication technologies (ICTs), with a scalable business model which allows rapid and sustained growth over time. , are characterized by being businesses with very innovative ideas and a great disposition to satisfy the needs of the market.
This strong technological component allows them to scale their business in an agile and fast way, and with a lower capital requirement than traditional companies.
Advantages of startups
Startup companies have many possibilities of expansion compared to other types of companies due to the intense use of ICTs. These allow them to reduce operating costs and reach a larger audience, making less investment.
The forecast of being able to generate profits in a relatively short space of time encourages private investors, characterized in the figure of business angels, to make large contributions of capital and even personnel to support the growth of the company. In many cases they even offer ideas and play an important role as a mentor to promote such development.
There are so-called startup incubators, which help entrepreneurs in their creation phase. Likewise, startup accelerators help these companies, once created, to grow more quickly.
Some startups carry out their activity even without having a physical space, since each worker can work remotely. In many cases, they do not require large numbers of staff either.
This class of companies encourages teamwork and creativity, in order to develop innovative ideas.
Its horizontal organization chart allows easy decision-making and direct communication between employees, which generates greater participation and significant input of ideas.
The implementation of new business and communication models meet the expectations of users or customers, since they allow them to express their own ideas and comments about the products or services received. The result, in many cases, is an increase in quality and efficiency.
Working in a startup provides a sense of belonging hardly generated in traditional companies. Many expansion ideas are contributed by the same worker, thus generating valuable experience and continuous learning.
Generally, the members of an emerging company are young, although there is also the participation of people with more experience regardless of their age.
Non-hierarchical companies, which have ample opportunities for professional and personal advancement.
They usually have tax advantages, depending on the country where the company is created.
¿How to finance a startup?
How to finance a startup is crucial because, although you can have the most revolutionary idea in the world, it will never come to fruition without money. In the beginning, when the company takes its first steps, entrepreneurs often use their own savings and look for funds in their close circle, that is, family and friends. It is what is known in English as the “three efes” of friends, family and fools, including in this group friends, relatives and the ‘crazy’ who risk betting on a project in the initial stages.
From there, a series of rounds will follow to raise capital with which the growth of the company will be financed. Each one is as if it were a checkpoint that must be passed to move on to the next phase of development of the startup. This is how the financing series A, B and C work where each letter identifies the growth point in which the company is located. And the more stages that have been completed, the less risky the investment will be.
Sorted alphabetically, each round allows potential investors to know how mature the company is: Series A (development phase), Series B (expansion phase), Series C (reaching new markets, buying other companies). The last phase of all would consist of taking part of the company to the stock market through an initial public offering (IPO, in English) as the Spanish Wallbox is about to do and Uber, Airbnb, Facebook or Twitter already did at the time.
The investment is riskier the less developed the startup is. In other words, it is not the same to invest in Facebook in 2004, when it was created and there were doubts about its viability, than in 2021, when everyone knows that it is a great business. In this sense, the profitability will be much higher if you enter the initial phases instead of the mature ones.
1 the first funds
Seed capital is the first funds that the startup raises for its operations. The name speaks for itself: it is like a seed from which a company will potentially be born.
This is where the “three efes” come in to find money with which to finance product development, do market research and pay for the participation of entrepreneurs in events and conferences to promote the company. It may be that in this initial period the startup has its first clients and income, although they are not yet significant.
2.Business development begins
Once the startup has completed the initial stage and met certain goals, it can launch a Series A round to try and take the business to the next level: develop the business model and increase revenue. With this money, entrepreneurs will try to increase the number of users with the intention of developing a long-term sustainable business model.
3.Expansion process
Series B comes when the startup considers that its business needs to expand. And, as money will be needed to pay for this expansion, the entrepreneurs will return to the market to regain the confidence of investors to obtain new funds.
4.To new markets
Only the most successful make it to Series C. Each of the previous stages functions as a kind of obstacle course in which various companies fall by the wayside. Therefore, those who reach Series C have already managed to gain the trust of investors after completing their seed phase, Series A and B. And, in that period, they have already proven to be businesses with a future after having registered a good performance that it has allowed them to overcome each stage.
