Start up Company
A start-up company (from English to start up = “to found, set in motion”), also a start-up company , or start-up for short is a company set up with an innovative business idea and high growth potential. The term is relatively new in economic history .
Often, because of the high risks involved, financing is not organized through traditional banks, but through development banks and innovative forms of financing such as venture capital and crowdfunding .
Often the startups are dealing with a young or non-existent market and first have to find a functioning, scalable business model . Once they have found and established this, they are generally no longer considered a startup. Former startups sometimes keep the successful approaches of startups (such as innovative ability , flexibility , modernity, flat hierarchies ), promote them through incubators , found or outsource their own divisions as startups (so-called spinoffs ), or take over startups through acquisitions.
Not every newly founded company is called a startup. For example, start craft companies such as carpenters and hairdressers or professionals such as architects and lawyers usually neither with an innovative business idea nor do they have the primary objective to grow rapidly. They serve an existing and proven market and are often considered to be entrepreneurs . In franchising , the franchisee is also not a startup, but the franchisor can be. Copycat - companies in the tech sector are sometimes referred to as startups, but usually only partially fulfill the criterion of innovation, rather they often introduce this in a different market than the copied company.
Although in principle companies from all industries that meet the criteria of innovation and scalability can be described as startups, in practice most startups are active in the technology and internet sector. Typical industries are electronic trade , application software , financial technology , biotechnology , nanotechnology , new manufacturing processes , Industry 4.0 or aerospace technology . Sometimes startups change entire lines of business and models, which is also known as disruption .
Often the founders and investors of a startup intend to offer the company on the open market after a few years, either to an established company through participation or takeover , or to many shareholders through an IPO . Often the viability or potential of the company is to be shown or new ideas to be realized. A fertile start-up scene therefore often arises from the dynamism of talent and financial resources , which is stimulated by sales and regional networks with growing know-how . The concentration of certain industries or a large number of startups is called a startup cluster . For the startup founders, political stability and legal security are important factors when choosing a location. In addition to the decisive register and contract security or competent jurisdiction and international legal security , speed is important when entering the register, whereby the state company register should be kept as electronic as possible. The successful startup scene in Silicon Valley attaches particular importance to an analog working culture when it was founded . Personal presence and analogous contracts are mandatory; virtual communication or start-up procedures are strictly frowned upon.
The Silicon Valley in California (USA) is considered worldwide as an exemplary startup location of its cutting-edge research about at the Stanford University , numerous business incubators, many investors as well as innovative, courageous and well-connected enterprise is successful. The world's most renowned examples of companies founded as startups include online-based services from Silicon Valley such as Google , Facebook , Twitter , eBay , PayPal , Airbnb , GitHub , Salesforce and Uber , the online university Udacity , the mail order company Amazon, as well as technology companies like Tesla Motors and SpaceX .
The start-up nation of Israel is now closely following Silicon Valley . According to IVC Research , 8,300 start-ups (as of July 2019) have now been founded. The sale of innovative products abroad has so far reached 152 billion US dollars.
In the 2010s has been for startups with a market valuation of more than one billion US dollars , the term " Unicorn " (English unicorn established). The magazine Fortune lists in June 2016 a total of 174 Unicorn startups, including some European and German companies.
Examples of startups in Germany are the social networks Researchgate and StepStone , the internet retailers Zalando , Home24 and Westwing , the mobile payment provider payleven , the biotech company CureVac and the web service providers Eventim , GetYourGuide , Trivago , tape.tv , Here , TeamViewer , Jimdo , Lieferheld , HelloFresh , Statista , Babbel , Wunderlist and SoundCloud . Especially in the niche of online games , German providers with innovative business models have become world leaders, including Wooga , Bigpoint , Gameforge and Goodgame . German startups in the field of individual production , such as Spreadshirt and Mymuesli , in the field of online dating , and in the shared economy field, the rental marketplace Erento and the private loan marketplaces auxmoney and smava are considered global pioneers . In the dynamic growth market of mobility , in addition to spin-offs from German automobile manufacturers such as the recently merged car sharing providers Car2go and DriveNow and the ridesharing center flinc , the Munich startup FlixMobility (FlixBus, Flixtrain ), which is currently expanding to Germany and Europe as a pioneer in the USA, has established itself . In the FinTech sector, the German start-up N26 is one of the most valuable companies in Europe. Many of the startups are linked to one another in regional networks or organizations such as the Federal Association of German Startups or Bitkom .
Many of the globally successful start-up companies have developed, among other things, through innovative approaches to problem solving , through regionalization and globalization , through the scalability (ability to increase) of their technology and their business models , thanks to functioning start-up support and corporate financing from their environment, as well as through intelligent ( entrepreneurial ) marketing within In a relatively short period of time they have achieved the position of world market leader in their field, or have even created a completely new market. Also best practices ( best practices ) on corporate structuring play a role in many successful startups. One of the essential factors for founding and for the success of the new company is the connection between the founders and employees with local research institutions, such as the examples of Stanford University with the Stanford Linear Accelerator Center in Silicon Valley , the International Center for Theoretical Physics in Trieste or the Show science cluster WISTA in Berlin-Adlershof .
According to an RKW study from November 2015, a "fruitful regional founder ecosystem " and a founder- friendly climate are decisive for the success of startups as a whole , which is created through the interaction of talent, successful entrepreneurs, financing options, educational institutions, low-bureaucratic politics and administration, potential customers, high-performance infrastructure (especially digital ) and connection to public transport , the openness for innovation, creativity and a high quality of life . With good coordination, this can also be done outside of large cities, for example with proactive , high -quality regional management and by networking regional start-up initiatives.
According to an urban economic study of Berlin from March 2014, a high population density and a lively nightlife and cultural life are important for the start-up start-up scene, which brings work and life close together. Silicon Valley, for example, is also characterized by an extreme cult of closeness - personal presence is compulsory, virtual communication is frowned upon; Those who drive away lose touch and those who are there get contacts. Office districts, technology parks and greenfield start-up centers are therefore extremely unattractive for most start-ups, even with good transport connections.
Since the products of startups are often based on new technologies, the founders of startups often come from engineering and computer science , where they came across their business ideas during their studies. For example, the two founders of Google, Larry Page and Sergey Brin , were doctoral students in computer science, and their search engine was based on the PageRank algorithm they had developed as part of their research at the university. Nevertheless, most of the founders have predominantly completed an economics degree.
The founders of startups are often relatively young in terms of the responsibility that goes with them. Page and Brin were both 25 when they started their company, and Mark Zuckerberg was only 20 when he started Facebook with three fellow students.
There are a number of typical motivations that motivate startup founders. The most important ones include the desire for autonomy and financial independence and the need to build something new and of your own.
Founding and managing a startup is associated with many challenges. The requirements for a founder are correspondingly high:
- Willingness to work a lot and take responsibility,
- Optimism and belief in the possibility of one's own success,
- high self-confidence,
- A willingness to take risks and not be discouraged by setbacks,
- high level of motivation and enthusiasm,
- quick comprehension and ability to learn from one's mistakes.
According to one study, the personality of founders was the third leading cause of startup failure.
Successful startups go through several stages of corporate financing with ever increasing amounts.
In the beginning, the founders finance their idea out of their own pocket. In the second stage, they receive support from family members or friends. The amounts here are in the five-digit euro range , depending on personal wealth . In this phase, little more than the living expenses of the founders have to be financed.
The first formal funding phase is called the seed round . Here private financiers (mostly business angels ) invest in the startup. In return, they receive a certain share in the company. Seed investments go into the six-digit euro range, with one to three employees they need an average of around 700,000 euros. These funds are used, for example, to create prototypes or to carry out market analyzes .
If the startup was successful by then, it will need additional funds - initially to develop the product to market maturity and then to finance the market launch and growth. This may require seven or even eight-digit amounts. Such investments are made by venture capital companies like the Berlin company Earlybird and often make headlines because of their size. In return, the founders usually have to give up additional company shares.
Finally - typically after a few years - there is an exit where the company is offered on the market. This can be done by going public or by selling it to another company. This is how the first investors make their profit, and the founders often become multimillionaires overnight and can found other startups or support them financially.
Startups are exposed to several risks: The founders are often young and have at most little entrepreneurial experience. Often it is initially unclear whether your product can be developed with sufficient quality. It is also usually uncertain whether the market will accept the product. For these reasons, the success rate of startups is rather low: out of ten startups, an average of seven or eight fail, one or two companies achieve steady sales, but without the expected growth, and at most one in ten achieve the hoped-for success. This success rate of only 10 percent explains the very high return expectations of investors: In order to get back the capital invested, every successful company in its portfolio has to absorb the losses of nine other companies on average.
A study of 101 failed startups showed that the top three reasons for failure could have been avoided:
- A product was developed that nobody wanted to buy. (42 percent)
- The budget was used up before sufficient sales could be achieved. (29 percent)
- The founding team did not fit together psychologically. (23 percent)
Only in fourth place is there an external cause: a competitor was stronger. In order to avoid the first problem in particular, the Lean Startup concept was introduced, which is intended to avoid these and other wrong decisions at an early stage.
Because of their great economic importance, there are a number of different funding measures for startups - from both the public and the private sector.
Incubators or start-up centers are facilities that support startups and provide various services. They are financed from public funds as part of economic development or by private investors or in cooperation with public and private donors. Typical incubator offerings include:
- Offices and technical infrastructure for startups
- Economic and legal advice
- Contacts with investors
- Coaching , training and seminars on business topics
Various universities provide incubators for their students and employees. Examples of this are the Center for Entrepreneurship at the University of Rostock and the Center for Entrepreneurship at the Technical University of Berlin .
A well-known example of a private-sector incubator in Germany is the Factory in Berlin. The incubator companies EFounders (Paris / Brussels), Makeshift (London) as well as Rocket Internet , HitFox and Team Europe (all Berlin) are considered to be “startup studios” or “startup factories” that focus their activities on developing particularly efficiently and set up repeatable models for establishing startups.
Coworking offers such as Betahaus , Tapetenwerk and Metalab can also act as incubators through offers for start-up support. The public and private German technology centers also serve the purpose of supporting innovative business start-ups.
Accelerators (literally accelerators ) have a similar function to incubators, but with a more time-consuming program. They are aimed at startups that are at the very beginning and often only have one business idea. Usually a startup is supported and co-financed over a period of one quarter or a maximum of six months. Accelerators are operated commercially, and the accelerator usually takes a share of the startup company as compensation for its funding. A counterexample is the Berlin Hardware Accelerator . Within a few months, the startups build a first prototype and create a business model for their idea . At the end of the stay, investors are invited and given the opportunity to invest in the startups. This increases the likelihood of success and thus also the financial result for the accelerator.
Globally operating established companies in particular want to use the agility of startups to promote innovations for themselves and to use them sustainably. Also, venture capital companies and already successful startup founders involved varied in the start-up and start-up funding. They are the most popular accelerator program operators. The programs can assess their performance as the type of mentoring vary, the necessary facilities and conditions for investment strong and fundamentally different business areas and founder types appeal.
One of the best-known and most successful accelerators is Y Combinator , based in Mountain View , California, USA - it was founded in 2005 and is therefore the first “Seed Accelerator”. He has supported hundreds of startups in various market segments, including well-known names such as reddit , Airbnb , Dropbox and Disqus . The total value of funded by Y Combinator company to 7.8 billion US dollars estimated, which corresponds to an average of 45.2 million dollars per company.
The pioneer accelerator Y Combinator was followed by other important programs such as TechStars (since 2006) and several offshoots of SOSV as well as the two European programs Seedcamp (2007) and Startupbootcamp (2010), which are regularly held in Europe (including in Berlin, Amsterdam, London, Istanbul and Paris) and other parts of the world.
Examples of German accelerators are the in-house companies T-Venture (replaced in 2014 by Deutsche Telekom Capital Partners (DTCP) ) and hub: raum from Deutsche Telekom, CoLaborator and Grants4Apps from Bayer AG , Commerzbank Main Incubator , You Is Now from Scout24 Holding , the Siemens Technology Accelerator , Plug and Play from Axel Springer SE , the ProSiebenSat.1 Accelerator and the Stuttgart Startup Autobahn . Global examples are the Microsoft Ventures Accelerator , Google for Entrepreneurs and Wayra from the telecommunications group Telefónica . Providers such as Startupbootcamp and Seedcamp also have locations in Germany, especially in Berlin, where the Berlin Startup Academy is also located. A special case is the German Silicon Valley Accelerator , which enables startups, with the support of the German federal government, to spend three months in the vicinity of the large technology groups in the western United States . The Organic Accelerator model is pursued in the Factory Berlin , where the entire necessary infrastructure and high- profile technology companies (such as SoundCloud and Twitter ) support founders, whereby the Factory, in contrast to other programs, grants great freedom and does not require any company shares or structure requirements power. In Italy, the cooperation between the AREA Science Park, the city of Trieste and Microsoft forms an internationally important accelerator model.
Many countries have funding programs at both regional and national level to motivate people to set up startups. In Germany, the federal government's EXIST program is a well-known example that aims to promote academic start-ups by targeting students and university graduates.
A problem with the public funding programs and, above all, the administrative offices in Germany is mentioned that often only German is spoken as the official language, while the English language predominates between the founders from all over the world, especially in the area of start-up companies , and therefore communication difficulties with the Offices exist. In addition to other reasons, the establishment of English as an additional official language is suggested.
In order to alleviate the effects of the 2020 economic crisis triggered by the COVID-19 pandemic , the German government launched a € 2 billion package of measures in April 2020, following demands from startup initiatives. This is structured in two pillars: On the one hand, startups are to be supported indirectly through public co-investments. The so-called Corona Matching Facility reflects the investments of private venture capital funds with public funds. The second pillar of the startup shield supports startups and small and medium-sized enterprises that do not have access to the corona matching facilities. In contrast to the Corona Matching Facility, the implementation of the second pillar takes place on a decentralized basis via the funding institutes of the federal states.
As a result of the many startups that failed, sometimes spectacularly, after the dot-com bubble burst in 2000, the American investor Steve Blank introduced a new approach that was designed to avoid many of the mistakes made at the time. This approach is popularized by his former student and current business partner Eric Ries based on Lean Production under the name Lean Startup ( lean in the sense of slim ).
The basic principle of Lean Startup is that every idea for starting a business must be viewed as an unproven hypothesis that is only considered certain once it has been empirically validated. Hypotheses that have been refuted must be replaced by new ones. Only when all the hypotheses critical to success have been validated can the startup move on to the next phase. The check should be carried out as quickly and inexpensively as possible. This is to prevent a startup from wasting time and money on irrelevant activities or failing due to a false assumption.
Elaborate on the creation of business plans ( business plans ) states is usually waived. Instead, potential business partners such as donors and customers are presented with prototypes that gradually lead to a marketable end product . This method is being used more and more frequently by large corporations in the 21st century .
Proponents of this approach emphasize that the main advantage of the lean startup is that the company avoids the mistake of developing and marketing a product that does not sell on the market. This has been a common cause of startup failure.
The second important advantage is that the startup very efficiently collects the information it needs to develop and market a successful product. Large expenditures are only made when the main hypotheses are confirmed.
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