Editing Startup company (section)

==Investing==
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[[File:Startup Financing Cycle.png|thumb|right|upright=1.35|Diagram of the typical financing cycle for a startup company]]

Startup investing is the action of making an investment in an early-stage company. Beyond founders' own contributions, some startups raise additional investment at some or several stages of their growth. Not all startups trying to raise investments are successful in their fundraising.{{Citation needed|date=January 2023}}Venture Capital is a subdivision of Private Equity wherein external investors fund small-scale startups that have high growth potential in the long run. Venture capital is the money of invention that is invested into young businesses which hold no historic background. Usually, the business of venture capital is highly risky but one can at the same time expect high returns as well.<ref>{{Cite journal |last1=Raza |first1=M. Tanzeem |last2=Natarajan |first2=P. |date=January 2023 |title=Factors Driving Venture Capital Investments in India |url=http://journals.sagepub.com/doi/10.1177/23939575221139944 |journal=Journal of Entrepreneurship and Innovation in Emerging Economies |language=en |volume=9 |issue=1 |pages=62–79 |doi=10.1177/23939575221139944 |s2cid=256504532 |issn=2393-9575 |access-date=2023-05-02 |archive-date=2023-04-18 |archive-url=https://web.archive.org/web/20230418221910/https://journals.sagepub.com/doi/10.1177/23939575221139944 |url-status=live }}</ref>

In the United States, the solicitation of funds became easier for startups as result of the [[JOBS Act]].<ref name="The Wall Street Journal">{{cite web|url=https://blogs.wsj.com/venturecapital/2013/09/23/startups-vcs-now-free-to-advertise-their-fundraising-status/|title=Startups, VCs Now Free To Advertise Their Fundraising Status|work=The Wall Street Journal|access-date=23 September 2013|date=23 September 2013|archive-date=7 June 2020|archive-url=https://web.archive.org/web/20200607174315/https://blogs.wsj.com/venturecapital/2013/09/23/startups-vcs-now-free-to-advertise-their-fundraising-status/|url-status=live}}</ref><ref name="Financial Times">{{cite web|url=http://www.ft.com/intl/cms/s/0/ea20e300-2601-11e3-8ef6-00144feab7de.html?siteedition=intl|title=All-comers join web party for a punt on best start ups|work=Financial Times|access-date=26 September 2013|archive-date=21 August 2016|archive-url=https://web.archive.org/web/20160821213003/http://www.ft.com/intl/cms/s/0/ea20e300-2601-11e3-8ef6-00144feab7de.html?siteedition=intl|url-status=live}}</ref><ref name="Bloomberg Businessweek1">{{cite news|url=http://www.businessweek.com/articles/2013-09-20/startups-remain-cloudy-on-the-new-general-solicitation-rule|archive-url=https://web.archive.org/web/20130921083327/http://www.businessweek.com/articles/2013-09-20/startups-remain-cloudy-on-the-new-general-solicitation-rule|url-status=dead|archive-date=September 21, 2013|title=Startups Remain Cloudy on the New General Solicitation Rule|work=Bloomberg Businessweek |date=20 September 2013 |access-date=20 September 2013}}</ref><ref name="Bloomberg Businessweek2">{{cite web|url=https://venturebeat.com/2013/09/23/the-ban-has-lifted-heres-what-these-6-companies-think-about-general-solicitation/|title=The ban has lifted: Here's what these 6 companies think about general solicitation|work=Venturebeat|access-date=23 September 2013|date=23 September 2013|archive-date=7 June 2020|archive-url=https://web.archive.org/web/20200607174318/https://venturebeat.com/2013/09/23/the-ban-has-lifted-heres-what-these-6-companies-think-about-general-solicitation/|url-status=live}}</ref> Prior to the advent of [[equity crowdfunding]], a form of online investing that has been legalized in several nations, startups did not advertise themselves to the general public as investment opportunities until and unless they first obtained approval from regulators for an [[initial public offering]] (IPO) that typically involved a listing of the startup's securities on a [[stock exchange]]. Today, there are many alternative forms of IPO commonly employed by startups and startup promoters that do not include an exchange listing, so they may avoid certain regulatory compliance obligations, including mandatory periodic disclosures of financial information and factual [[Financial statement#Management discussion and analysis|discussion of business conditions by management]] that investors and potential investors routinely receive from registered public companies.<ref>{{cite web|url=http://investor.gov/|title=Investor.gov|work=Securities and Exchange Commission|access-date=1 July 2014|archive-date=31 May 2020|archive-url=https://web.archive.org/web/20200531163959/https://www.investor.gov/|url-status=live}}</ref>

Over the last decade, Europe has developed a rapid start-up scene that has given birth to global players, including more than 70 unicorns, and has created more than two million jobs. Investment in European start-ups increased sixfold between 2010 and 2020, reaching approximately €40 billion.<ref name=":02">{{Cite web |title=ETCI venture capital fund to boost EU start-ups, plug funding gap |url=https://www.eib.org/en/stories/etci-venture-capital |access-date=2023-03-02 |website=European Investment Bank |language=en |archive-date=2023-03-02 |archive-url=https://web.archive.org/web/20230302162957/https://www.eib.org/en/stories/etci-venture-capital |url-status=live }}</ref><ref>{{Cite web |title=Lessons from the best start-ups in Europe {{!}} McKinsey |url=https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/what-makes-the-difference-for-europes-top-start-ups |access-date=2023-03-02 |website=www.mckinsey.com |archive-date=2023-03-02 |archive-url=https://web.archive.org/web/20230302162954/https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/what-makes-the-difference-for-europes-top-start-ups |url-status=live }}</ref> Europe does a poorer job of nurturing young companies because of a failure to support their development into industry leaders. Promising European start-ups then struggle to raise the necessary capital to expand and mature. They are forced to either relocate to the US's deep capital markets or sell themselves to larger rivals with more financial availability. As a result, start-ups in the United States can typically raise far more money—up to five times as much as in Europe.<ref name=":02"/><ref>{{Cite web |title=Hard choices: How Europe's fastest-growing start-ups become unicorns {{!}} McKinsey |url=https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/hard-choices-how-europes-fastest-growing-start-ups-become-unicorns |access-date=2023-03-02 |website=www.mckinsey.com |archive-date=2023-03-02 |archive-url=https://web.archive.org/web/20230302162953/https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/hard-choices-how-europes-fastest-growing-start-ups-become-unicorns |url-status=live }}</ref>

Investors are generally most attracted to those new companies distinguished by their strong co-founding team, a balanced "risk/reward" profile (in which high risk due to the untested, disruptive innovations is balanced out by high potential returns) and "scalability" (the likelihood that a startup can expand its operations by serving more markets or more customers).{{Citation needed|date=December 2019}} Attractive startups generally have lower "[[bootstrapping]]" (self-funding of startups by the founders) costs, higher risk, and higher potential [[return on investment]]. Successful startups are typically more scalable than an established business, in the sense that the startup has the potential to grow rapidly with a limited investment of capital, labor or land.<ref>{{cite web|last1=Amit Ghosh|title=How To Choose The Best Business Structure To Choose For A Start up?|url=http://www.thestartupjournal.com/best-business-structure-for-startups/|website=The Startup Journal|access-date=30 April 2016|language=en-US|date=14 December 2014|archive-date=2 June 2016|archive-url=https://web.archive.org/web/20160602070158/http://www.thestartupjournal.com/best-business-structure-for-startups/|url-status=live}}</ref>{{Failed verification|date=January 2023}} Timing has often been the single most important factor for biggest startup successes,<ref>{{cite web|url=https://www.ted.com/talks/bill_gross_the_single_biggest_reason_why_startups_succeed?language=en|title=Bill Gross: The single biggest reason why startups succeed - TED Talk - TED.com|author=Bill Gross|date=June 2015|access-date=2015-06-25|archive-date=2015-06-26|archive-url=https://web.archive.org/web/20150626103004/http://www.ted.com/talks/bill_gross_the_single_biggest_reason_why_startups_succeed?language=en|url-status=live}}</ref> while at the same time it is identified to be one of the hardest things to master by many serial entrepreneurs and investors.<ref>{{cite web|url=http://cdixon.org/2010/11/07/timing-your-startup/|title=Timing your startup|access-date=2015-06-25|archive-date=2015-06-26|archive-url=https://web.archive.org/web/20150626110922/http://cdixon.org/2010/11/07/timing-your-startup/|url-status=live}}</ref>

Startups have several options for funding. [[Revenue-based financing]] lenders can help startup companies by providing non-dilutive [[growth capital]] in exchange for a percentage of monthly revenue.<ref>{{cite web |last1=Goodman |first1=Michelle |title=4 Tips for Landing Revenue-Based Financing |url=https://www.entrepreneur.com/article/243055 |website=[[Entrepreneur (magazine)|Entrepreneur]] |date=18 March 2015 |access-date=8 February 2019 |archive-date=8 June 2020 |archive-url=https://web.archive.org/web/20200608173744/https://www.entrepreneur.com/article/243055 |url-status=live }}</ref> Venture capital firms and angel investors may help startup companies begin operations, exchanging [[seed money]] for an [[Capital stock|equity]] stake in the firm. Venture capitalists and angel investors provide financing to a range of startups (a portfolio), with the expectation that a very small number of the startups will become viable and make money. In practice though, many startups are initially funded by the founders themselves using "bootstrapping", in which loans or monetary gifts from friends and family are combined with savings and credit card debt to finance the venture. [[Factoring (finance)|Factoring]] is another option, though it is not unique to startups. Other funding opportunities include various forms of [[crowdfunding]], for example equity crowdfunding,<ref>{{cite news|url=http://news.bbc.co.uk/2/hi/10100885.stm|title=Cash-strapped entrepreneurs get creative|newspaper=BBC News|date=12 May 2010|last1=Prentice|first1=Claire|access-date=25 May 2010|archive-date=21 May 2010|archive-url=https://web.archive.org/web/20100521154619/http://news.bbc.co.uk/2/hi/10100885.stm|url-status=live}}</ref> in which the startup seeks funding from a large number of individuals, typically by pitching their idea on the Internet.

Startups can receive funding via more involved stakeholders, such as startup studios. Startup studios provide funding to support the business through a successful launch, but they also provide extensive operational support, such as HR, finance and accounting, marketing, and product development, to increase the probability of success and propel growth.<ref>{{Cite web|last=Kronenberger|first=Craig|date=2021-02-23|title=How the Startup Studio Business Model Is Changing the Startup Economy as We Know It|url=https://medium.com/startup-studio-insider/how-the-startup-studio-business-model-is-changing-the-startup-economy-as-we-know-it-4a121a670007|access-date=2021-02-25|website=Medium|language=en|archive-date=2021-03-01|archive-url=https://web.archive.org/web/20210301093348/https://medium.com/startup-studio-insider/how-the-startup-studio-business-model-is-changing-the-startup-economy-as-we-know-it-4a121a670007|url-status=live}}</ref>

Startup are funded through preset rounds, depending on their funding requirement and the stage of growth of the company. Startup investing is generally divided into six stage, namely

# Angel funding
# [[Seed funding|Seed]] Funding
# Pre-Series A
# Series B
# Series C,D
# Series E, F and Beyond <ref>{{Citation |last1=David |first1=Dharish |title=The Startup Environment and Funding Activity in India |date=2020 |url=https://www.worldscientific.com/doi/abs/10.1142/9789811235825_0007 |work=Investment in Startups and Small Business Financing |volume=17 |pages=193–232 |access-date=2023-04-29 |series=World Scientific Series in Finance |publisher=World Scientific |doi=10.1142/9789811235825_0007 |isbn=978-981-12-3581-8 |last2=Gopalan |first2=Sasidaran |last3=Ramachandran |first3=Suma |s2cid=229544331 |archive-date=2023-04-07 |archive-url=https://web.archive.org/web/20230407002105/https://www.worldscientific.com/doi/abs/10.1142/9789811235825_0007 |url-status=live }}</ref>

===Necessity of funding===
While some (would-be) entrepreneurs believe that they can't start a company without funding from VC, Angel, etc.&nbsp;that is not the case.<ref>{{Cite news|url=https://inc42.com/resources/revisiting-the-myths-about-entrepreneurship-and-innovation/|title=Revisiting the myths about entrepreneurship and innovation - Vivek Wadhwa|date=30 August 2018|work=Vivek Wadhwa|access-date=6 October 2018|language=en-US|archive-date=8 June 2020|archive-url=https://web.archive.org/web/20200608174031/https://inc42.com/resources/revisiting-the-myths-about-entrepreneurship-and-innovation/|url-status=live}}</ref> In fact, many entrepreneurs have founded successful businesses for almost no capital, including the founders of [[Mailchimp|MailChimp]], [[Shopify]], and [[Shutterstock|ShutterStock]].<ref>{{Cite web|title=Invisible unicorns: 35 big companies that started with little or no money|url=https://techcrunch.com/2017/07/01/invisible-unicorns-35-big-companies-that-started-with-little-or-no-money/|access-date=2020-10-27|website=TechCrunch|date=July 2017 |language=en-US}}</ref>

===Valuations===
If a company's value is based on its technology, it is often equally important for the business owners to obtain [[intellectual property protection]] for their idea. The newsmagazine ''[[The Economist]]'' estimated that up to 75% of the value of US public companies is now based on their [[intellectual property]] (up from 40% in 1980).<ref>See generally A Market for Ideas, ECONOMIST, 22 October 2005, at 3, 3 (special insert)</ref> Often, 100% of a small startup company's value is based on its intellectual property. As such, it is important for technology-oriented startup companies to develop a sound strategy for protecting their [[intellectual capital]] as early as possible.<ref>{{Cite news |last=Weinberg |first=Stuart |date=2008-08-12 |title=What Business Owners Should Know About Patenting |language=en-US |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/SB121820956214224545 |access-date=2023-08-02 |issn=0099-9660}}</ref> Startup companies, particularly those associated with new technology, sometimes produce huge returns to their creators and investors—a recent example of such is Google, whose creators became billionaires through their stock ownership and options.

===Investing rounds===
When investing in a startup, there are different types of stages in which the investor can participate. The first round is called [[seed round]]. The seed round generally is when the startup is still in the very early phase of execution when their product is still in the prototype phase. There is likely no performance data or positive financials as of yet. Therefore, investors rely on strength of the idea and the team in place. At this level, family friends and [[angel investors]] will be the ones participating. At this stage the level of risk and payoff are at their greatest. The next round is called [[Series A round|Series A]]. At this point the company already has traction and may be making revenue. In Series A rounds venture capital firms will be participating alongside angels or [[super angel]] investors. The next rounds are [[Series B]], C, and D. These three rounds are the ones leading towards the Initial Public Offering ([[IPO]]). Venture capital firms and [[private equity]] firms will be participating.<ref name="Nasdaq">{{cite web|url=http://www.nasdaq.com/article/with-new-jobs-act-rule-a-new-era-of-investment-banking-cm279813|title=With the new JOBS Act a new era of investment banking?|work=Nasdaq|access-date=24 September 2013|archive-date=4 October 2013|archive-url=https://web.archive.org/web/20131004215201/http://www.nasdaq.com/article/with-new-jobs-act-rule-a-new-era-of-investment-banking-cm279813|url-status=live}}</ref> Series B: Companies are generating consistent revenue but must scale to meet growing demand. Series C & D: Companies with strong financial performance looking to expand to new markets, develop new products, make an acquisition, and/or preparing for IPO.

===History of startup investing===
After the [[Great Depression]], which was blamed in part on a rise in speculative investments in unregulated small companies, startup investing was primarily a word of mouth activity reserved for the friends and family of a startup's co-founders, business angels, and Venture Capital funds. In the United States, this has been the case ever since the implementation of the [[Securities Act of 1933]]. Many nations implemented similar legislation to prohibit general solicitation and general advertising of unregistered securities, including shares offered by startup companies. In 2005, a new Accelerator investment model was introduced by [[Y Combinator (company)|Y Combinator]] that combined fixed terms investment model with fixed period intense bootcamp style training program, to streamline the seed/early-stage investment process with training to be more systematic.

Following Y Combinator, many accelerators with similar models have emerged around the world. The accelerator model has since become very common and widely spread and they are key organizations of any [[Startup ecosystem]]. Title II of the [[Jumpstart Our Business Startups Act]] (JOBS Act), first implemented on 23 September 2013, granted startups in and startup co-founders or promoters in US. the right to generally solicit and advertise publicly using any method of communication on the condition that only [[accredited investor]]s are allowed to purchase the securities.<ref>{{cite web|url=https://www.sec.gov/spotlight/jobs-act.shtml|title=Jumpstart Our Business Startups (JOBS) Act Spotlight|work=SEC.GOV|access-date=1 July 2014|archive-date=27 May 2020|archive-url=https://web.archive.org/web/20200527023444/https://www.sec.gov/spotlight/jobs-act.shtml|url-status=live}}</ref><ref name="ABC News">{{cite web|url=https://abcnews.go.com/Business/dark-side-crowdfunding-startup-companies/story?id=20343963|title=Newly Legal: Buying Stock in Start Ups Via Crowdsourcing|work=ABC News|access-date=24 September 2013|date=24 September 2013|archive-date=9 June 2020|archive-url=https://web.archive.org/web/20200609155913/https://abcnews.go.com/Business/dark-side-crowdfunding-startup-companies/story?id=20343963|url-status=live}}</ref><ref name="Bloomberg">{{cite news|url=https://www.bloomberg.com/news/2013-09-24/levine-on-wall-street-chrysler-s-unwanted-ipo.html|title=Levine on Wall Street: Chrysler's Unwanted IPO|work=Bloomberg|date=24 September 2013|access-date=24 September 2013|archive-date=22 October 2013|archive-url=https://web.archive.org/web/20131022100704/http://www.bloomberg.com/news/2013-09-24/levine-on-wall-street-chrysler-s-unwanted-ipo.html|url-status=live}}</ref> However the regulations affecting equity crowdfunding in different countries vary a lot with different levels and models of freedom and restrictions. In many countries there are no limitations restricting general public from investing to startups, while there can still be other types of restrictions in place, like limiting the amount that companies can seek from investors. Due to positive development and growth of crowdfunding,<ref>{{cite web|url=https://www.crowdsourcing.org/editorial/global-crowdfunding-market-to-reach-344b-in-2015-predicts-massolutions-2015cf-industry-report/45376 |title=Global Crowdfunding Market to Reach $34.4B in 2015, Predicts Massolution's 2015CF Industry Report|work=www.crowdsourcing.org|url-status=dead|archive-url=https://web.archive.org/web/20160306084019/https://www.crowdsourcing.org/editorial/global-crowdfunding-market-to-reach-344b-in-2015-predicts-massolutions-2015cf-industry-report/45376|archive-date=6 March 2016}}</ref> many countries are actively updating their regulation in regards to crowdfunding.

===Investing online===
The first known investment-based crowdfunding platform for startups was launched in February 2010 by Grow VC,<ref>{{cite web|url=https://techcrunch.com/2010/02/15/grow-vc-launches-aiming-to-become-the-kiva-for-tech-startups/|title=Grow VC launches, aiming to become the Kiva for tech startups|date=15 February 2010|publisher=AOL|work=TechCrunch|access-date=25 June 2017|archive-date=20 February 2012|archive-url=https://web.archive.org/web/20120220073902/http://eu.techcrunch.com/2010/02/15/grow-vc-launches-aiming-to-become-the-kiva-for-tech-startups/|url-status=live}}</ref> followed by the first US. based company ProFounder launching model for startups to raise investments directly on the site,<ref>{{cite web|url=https://techcrunch.com/2011/05/03/crowdsourced-fundraising-platform-profounder-now-offers-equity-based-investment-tools/|title=Crowdsourced Fundraising Platform ProFounder Now Offers Equity-Based Investment Tools|date=3 May 2011|publisher=AOL|work=TechCrunch|access-date=25 June 2017|archive-date=2 April 2019|archive-url=https://web.archive.org/web/20190402080018/https://techcrunch.com/2011/05/03/crowdsourced-fundraising-platform-profounder-now-offers-equity-based-investment-tools/|url-status=live}}</ref> but ProFounder later decided to shut down its business due regulatory reasons preventing them from continuing,<ref>{{cite web|url=https://techcrunch.com/2012/02/17/startup-fundraising-platform-profounder-shuts-its-doors/|title=Fundraising Platform For Startups ProFounder Shuts Its Doors|date=17 February 2012|publisher=AOL|work=TechCrunch|access-date=25 June 2017|archive-date=2 April 2019|archive-url=https://web.archive.org/web/20190402082817/https://techcrunch.com/2012/02/17/startup-fundraising-platform-profounder-shuts-its-doors/|url-status=live}}</ref> having launched their model for US. markets prior to JOBS Act. With the positive progress of the JOBS Act for crowd investing in US., equity crowdfunding platforms like [[SeedInvest]] and [[CircleUp]] started to emerge in 2011 and platforms such as investiere, [[Companisto]] and [[Seedrs]] in Europe and [[OurCrowd]] in Israel. The idea of these platforms is to streamline the process and resolve the two main points that were taking place in the market. The first problem was for startups to be able to access capital and to decrease the amount of time that it takes to close a round of financing. The second problem was intended to increase the amount of deal flow for the investor and to also centralize the process.<ref name="Forbes">{{cite web|url=https://www.forbes.com/sites/tanyaprive/2013/09/23/general-solicitation-ban-lifted-today-three-things-you-must-about-it/|title=General Solicitation Ban Lifted Today - Three Things You Must Know About It|work=Forbes|access-date=23 September 2013|archive-date=9 June 2020|archive-url=https://web.archive.org/web/20200609173825/https://www.forbes.com/sites/tanyaprive/2013/09/23/general-solicitation-ban-lifted-today-three-things-you-must-about-it/|url-status=live}}</ref><ref name="Washington Post">{{cite news|url=https://www.washingtonpost.com/business/on-small-business/for-brokerdealers-crowdfunding-presents-new-opportunity/2013/03/28/bb835942-8075-11e2-8074-b26a871b165a_story.html|title=For broker/dealers, crowdfunding presents new opportunity|newspaper=[[The Washington Post]]|access-date=28 March 2013|archive-date=31 March 2013|archive-url=https://web.archive.org/web/20130331092827/http://www.washingtonpost.com/business/on-small-business/for-brokerdealers-crowdfunding-presents-new-opportunity/2013/03/28/bb835942-8075-11e2-8074-b26a871b165a_story.html|url-status=live}}</ref>