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What Is a Startup Company?

A startup is a new business organization that has recently launched operations and has not yet built up any degree of measurable history.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 November 2014
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A startup company is a new business organization that has recently launched operations and has not yet built up any degree of measurable history or business volume that allows for comparison over multiple time periods. Businesses that are considered startups usually are seen as high-risk ventures, since they do not have any track record of success, and in fact may still be struggling to build a client base and begin to generate some type of revenue. Investors often look closely at the nature of the products offered by a startup company, the expertise of the owners, and the business plan for the operation before making a decision regarding whether to invest in the business, and how much they are willing to risk.

There is some difference of opinion regarding how long these newly launched businesses must be in operation before they cease to be considered startups. One school of thought holds that a business is no longer a startup company once it has reached a point of generating enough revenue to cover its day to day operational costs. Others hold that the defining issue is not revenue generation but a matter of time, considering any company that is not at least two years old to be a startup. The exact criteria for determining whether a relatively new business is a startup company or not may vary based on standards set in different industries or even in different countries.

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While a new business of any type may properly called a startup company, the term is often closely associated with companies that have some connection with the development and offering of technology-based products. Sometimes known as high-tech startup companies, this would include businesses that develop hardware or software packages, or offer some sort of service and support to different types of technological equipment. For example, a software startup company may specialize in software packages for use in an office or commercial environment and also offer technical support for the installation, customization and updating of the software once the purchase has been completed.

Angel investors, venture capitalists and other types of investors may consider supplying investment funds that make the launch of a startup company possible. In order to attract investors, entrepreneurs will usually identify a type of product that is likely to generate a great deal of interest among consumers, create a viable business and marketing plan that includes the establishment of the company, manufacture of the product, and a solid idea of how to connect with the general public to generate sales. This information is then pitched to potential investors who can assess the soundness of the business plan, the potential for the product offering, and the feasibility of the marketing plan before making a decision on whether or not to invest. Some investors will also look closely at the background of the entrepreneur in terms of past successes in the business world and the ability to effectively lead the new startup company. When the overall business plan and the leadership inspires confidence in investors, there is a good chance that the business will be funded and the company can have the opportunity to find a place within the marketplace.

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