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Startup FAQ

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Startups are new businesses that apply innovative solutions. To start a startup, you need an idea, investment, and time. You must understand your target market, develop your product, and build your company culture. Startups often fail due to lack of funding, ineffective management, or better competitors. Successful startups have a strong business model and can position themselves in a growing market. There are various stages of startup funding including bootstrapping, angel investors, venture capital, and IPO.

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1 | Page Startup FAQs What is a startup? “Any new business that applies an innovative solution. The solution can be either technological or a unique business model” Another common definition comes from Investopedia as a “company that’s in the initial stages of business” At the risk of complicating things, startups can also be further categorized or defined by the number of employees, revenue and years of operation. Based on this, different entrepreneurs and business developers have proposed different criteria for when a startup ceases to be called a startup. How do you start a startup? The three necessary components to start a startup are an idea, investment and time. You will need to be working on all fronts simultaneously, find the right contacts and the support systems necessary to secure funding or be able to bootstrap your startup yourself. (bootstrapping = using your own savings or those of close friends and family and not relying on outside investment) What do startups need to know? When it comes to what you need to know, basic business principles apply. From a business-centric viewpoint you will need to know your target audience, conduct market research, find investors, register and pick a location (you can also choose to be location independent), and develop a product that stands out from the market. As a startup, you will also need to develop your company’s culture, stay passionate and true to your focus and learn when to take feedback and when to ignore it. Overall, what you need to know is that startups are a lot of hard work and require patience and determination to succeed in.
2 | Page Why do startups fail? There are myriad reasons why startups fail and most of them can be prevented. The reason is simply that not all startups develop a product the market needs or wants to reward financially. Also see the same “traditional” problems affecting other businesses such as lack of money, ineffective team management, bad marketing, pricing or better competitors. Why do startups succeed? Startups that manage to become successful are prepared, have a sensible business model and can position themselves within a market that offers long term exponential growth. How to obtain startup funding/capital? There are a few different ways to get funding for your startup: bootstrapping (your own savings, friends and family), angel investors, venture capital, government loans, government subsidies and crowdfunding. You will need to pick an option based on the maturity of your business, the initiatives or grants available in your location and whether or not you want to rely on outside investors. What is venture capital? Venture capital is a type of private equity and one of the ways startups with good potential for growth can receive funding. Venture capitalists (VC’s) manage pools of money called funds and they don’t necessarily invest their own money. This is in contrast to angel investors where the capital is provided by a certain individual. VC’s may also require a more active role in the running of your business and key operations. What are the startup funding stages? There are 7 major startup funding stages that every entrepreneur or startup developer needs to be aware of. This presents a linear progression for successful startups but not every startup will manage to proceed to the next stage. ● Pre-see funding – funding from friends and family ● Seed funding – angel investors, incubators and early-stage funding VC’s ● Series A funding – VC’s, accelerators ● Series B funding – VC’s (late-stage) ● Series C funding – VC’s, private equity firms, ● Series D funding (optional if needed) ● IPO – Stock Market Launch – open to the public
3 | Page What is a startup ecosystem? Startups grow, scale and operate within an interconnected and dynamic environment called an ecosystem. It is no different than natural ecosystems in that it encapsulates how a variety of moving players interact and co-exist. When a startup ecosystem is working together harmoniously, promoting, collaborating and attracting new talent and opportunities, then the ecosystem is well-positioned for future growth. How will a startup ecosystem be sustainable? The key to ecosystem sustainability is the smooth and harmonious co-existence of all the components. In addition to the startups themselves, this includes the educational providers, incubator and accelerator programs, investors and funding organizations as well as private and government officials. It is up to each member to contribute to the development and well-being of the ecosystem whether that is through promotions, funding, mentoring services, events, or networking. It all comes down to collaboration. What is a startup accelerator? A startup accelerator is a mentorship program, for a fixed term, often 3 or 6 months, that provides budding entrepreneurs and startup developers with legal and financial advice, seed capital, networking opportunities, and office space in exchange for equity. Startups that are focused on fast and global scaling can benefit immensely from the mentoring and education provided by mentors and industry veterans. Y Combinator, Techstars and 500 Startups are some of the most well-known and coveted accelerator programs. What is a startup incubator? A startup incubator is another mentoring and support program offered to startups that can help you get started. While incubators and accelerators appear, similar there are a few key differences. Incubators as the name suggests, operate as “nursery”, that provide seed capital and are often less selective in their application process and don’t have a set time frame. Accelerators, on the other hand, are about “accelerating” so they are focused on scaling as fast as possible. What qualifies as a “startup” for the purpose of government schemes? An entity (Private Limited Company or Registered Partnership Firm or Limited Liability Partnership) shall be considered a “Startup” – a) Up to 5 years from the date of its incorporation/ registration, and b) If its turnover for any of the financial years has not exceeded INR 25 crore, and c) It is working towards innovation, development, deployment or commercialization
4 | Page of new products, processes or services driven by technology or intellectual property. The entity should not have been formed by splitting up or reconstruction of a business already in existence. A proprietorship or a public limited company is not eligible as startup. A one-person company, being a private limited company is entitled to be recognized as a ‘startup’. For how long would recognition as a “startup” be valid? An entity would cease to be a ‘startup’ upon expiry of: a) 5 years from the date of its incorporation/ registration, OR b) If its turnover for any of the financial years has exceeded INR 25 crore; OR Startups would be required to intimate DIPP of any such cases within a period of 21 days. Can an existing entity register itself as a “startup” on the startup india portal and mobile app? Yes, an existing entity that meets the criteria can visit the Startup India Portal and Mobile App and get itself recognized for various benefits. What is the time frame for obtaining certificate of recognition as a “startup” in case an entity already exists? The process of registration in such cases shall be real time and the certificate of recognition would be issued immediately upon successful submission of the application.

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Startup FAQ

  • 1. 1 | Page Startup FAQs What is a startup? “Any new business that applies an innovative solution. The solution can be either technological or a unique business model” Another common definition comes from Investopedia as a “company that’s in the initial stages of business” At the risk of complicating things, startups can also be further categorized or defined by the number of employees, revenue and years of operation. Based on this, different entrepreneurs and business developers have proposed different criteria for when a startup ceases to be called a startup. How do you start a startup? The three necessary components to start a startup are an idea, investment and time. You will need to be working on all fronts simultaneously, find the right contacts and the support systems necessary to secure funding or be able to bootstrap your startup yourself. (bootstrapping = using your own savings or those of close friends and family and not relying on outside investment) What do startups need to know? When it comes to what you need to know, basic business principles apply. From a business-centric viewpoint you will need to know your target audience, conduct market research, find investors, register and pick a location (you can also choose to be location independent), and develop a product that stands out from the market. As a startup, you will also need to develop your company’s culture, stay passionate and true to your focus and learn when to take feedback and when to ignore it. Overall, what you need to know is that startups are a lot of hard work and require patience and determination to succeed in.
  • 2. 2 | Page Why do startups fail? There are myriad reasons why startups fail and most of them can be prevented. The reason is simply that not all startups develop a product the market needs or wants to reward financially. Also see the same “traditional” problems affecting other businesses such as lack of money, ineffective team management, bad marketing, pricing or better competitors. Why do startups succeed? Startups that manage to become successful are prepared, have a sensible business model and can position themselves within a market that offers long term exponential growth. How to obtain startup funding/capital? There are a few different ways to get funding for your startup: bootstrapping (your own savings, friends and family), angel investors, venture capital, government loans, government subsidies and crowdfunding. You will need to pick an option based on the maturity of your business, the initiatives or grants available in your location and whether or not you want to rely on outside investors. What is venture capital? Venture capital is a type of private equity and one of the ways startups with good potential for growth can receive funding. Venture capitalists (VC’s) manage pools of money called funds and they don’t necessarily invest their own money. This is in contrast to angel investors where the capital is provided by a certain individual. VC’s may also require a more active role in the running of your business and key operations. What are the startup funding stages? There are 7 major startup funding stages that every entrepreneur or startup developer needs to be aware of. This presents a linear progression for successful startups but not every startup will manage to proceed to the next stage. ● Pre-see funding – funding from friends and family ● Seed funding – angel investors, incubators and early-stage funding VC’s ● Series A funding – VC’s, accelerators ● Series B funding – VC’s (late-stage) ● Series C funding – VC’s, private equity firms, ● Series D funding (optional if needed) ● IPO – Stock Market Launch – open to the public
  • 3. 3 | Page What is a startup ecosystem? Startups grow, scale and operate within an interconnected and dynamic environment called an ecosystem. It is no different than natural ecosystems in that it encapsulates how a variety of moving players interact and co-exist. When a startup ecosystem is working together harmoniously, promoting, collaborating and attracting new talent and opportunities, then the ecosystem is well-positioned for future growth. How will a startup ecosystem be sustainable? The key to ecosystem sustainability is the smooth and harmonious co-existence of all the components. In addition to the startups themselves, this includes the educational providers, incubator and accelerator programs, investors and funding organizations as well as private and government officials. It is up to each member to contribute to the development and well-being of the ecosystem whether that is through promotions, funding, mentoring services, events, or networking. It all comes down to collaboration. What is a startup accelerator? A startup accelerator is a mentorship program, for a fixed term, often 3 or 6 months, that provides budding entrepreneurs and startup developers with legal and financial advice, seed capital, networking opportunities, and office space in exchange for equity. Startups that are focused on fast and global scaling can benefit immensely from the mentoring and education provided by mentors and industry veterans. Y Combinator, Techstars and 500 Startups are some of the most well-known and coveted accelerator programs. What is a startup incubator? A startup incubator is another mentoring and support program offered to startups that can help you get started. While incubators and accelerators appear, similar there are a few key differences. Incubators as the name suggests, operate as “nursery”, that provide seed capital and are often less selective in their application process and don’t have a set time frame. Accelerators, on the other hand, are about “accelerating” so they are focused on scaling as fast as possible. What qualifies as a “startup” for the purpose of government schemes? An entity (Private Limited Company or Registered Partnership Firm or Limited Liability Partnership) shall be considered a “Startup” – a) Up to 5 years from the date of its incorporation/ registration, and b) If its turnover for any of the financial years has not exceeded INR 25 crore, and c) It is working towards innovation, development, deployment or commercialization
  • 4. 4 | Page of new products, processes or services driven by technology or intellectual property. The entity should not have been formed by splitting up or reconstruction of a business already in existence. A proprietorship or a public limited company is not eligible as startup. A one-person company, being a private limited company is entitled to be recognized as a ‘startup’. For how long would recognition as a “startup” be valid? An entity would cease to be a ‘startup’ upon expiry of: a) 5 years from the date of its incorporation/ registration, OR b) If its turnover for any of the financial years has exceeded INR 25 crore; OR Startups would be required to intimate DIPP of any such cases within a period of 21 days. Can an existing entity register itself as a “startup” on the startup india portal and mobile app? Yes, an existing entity that meets the criteria can visit the Startup India Portal and Mobile App and get itself recognized for various benefits. What is the time frame for obtaining certificate of recognition as a “startup” in case an entity already exists? The process of registration in such cases shall be real time and the certificate of recognition would be issued immediately upon successful submission of the application.