What is a startup?
The entire world has been experiencing a startup boom for some time now. Many new products are released independently or in business incubators, but only a few survive. For business ideas to start making a profit, they must be useful and understandable in terms of marketing. The project must be well organized, get adequate funding, protection from competitors, and not forget to take into account a number of risks.
What does startup mean? The name comes from the English start up – “to start”. That is, a startup, in simple words, is a rapidly growing and gaining momentum business. He has a business idea that should “grow up” in the short term, and its investment needs. Getting started can relate to almost any field of activity. Although, most often, this is the name given to the creation of new products in the IT field.
The product must be new and in demand. Team is supposed to work on it and, most often, a fairly young age of the founder. To achieve success, an ambitious new player develops a steely character, knows how to take risks, quickly makes the right decisions and finds a common language with the right people, especially with investors. At one time, startups were such successful companies as HP (Hewlett-Packard), Youtube, Google, Wikipedia, and many others.
How to create a startup
Innovatives businesses are high-risk investments, they can be great start-ups and generate significant profits. On the other hand, more than 3/4 of the projects that the founders try to implement have been burned out. There are a number of factors and reasons why a startup will either take off or not. The reason for failure may be that the market is not ready to accept the product, the negative experience of those who tried to do this earlier was not taken into account. Another reason is founder burnout.
Very often, problems arise due to insufficient elaboration of the project at the initial stage. For a company to become successful, it is not enough just to come up with a brilliant idea. 5 points need to be worked out well:
- Determine the direction of activity. Ideally, it should lie at the intersection of three components: the owner’s interest, his skills, the ability to earn money.
- Find a problem that the project can solve quickly and without buildup. Where client pain and problems are, there are always opportunities.
- Analyze the market – understand whether the product will be in demand. The latter does not have to be grandiose, it has to be necessary. Test the product on a carefully selected target audience (TA).
- The main decision to make is to think over the minimum feature set for the product. You can start with it, and you can improve the design with functionality later.
- Build a business model, forecast profits and understand if there is room for development.
How to build startup
Starting a startup is closely related to investing. Therefore, we will consider the development of the project through the prism of finance. Investments, along with development, are divided into rounds. There are early rounds – pre-seed round (initial, pre-sowing), seed round (sowing), the so-called Round A – and later (Round B, C, others).
At the pre-seed, founders usually invest their own finances, test a business idea and the ability to turn it into a product. Then they make the first sales and, if they are successful, apply for seed investments. At this stage, you need to prove that this idea can turn out to be a fast growing business. After that, round A begins – investing in the development of a good product.
Venture capital firms provide support to startups at clearly defined stages. Therefore, it makes no sense to apply for seed funding if the investor specializes in the later stages.
Finding investments takes up to 70% of the time. Here it is necessary to draw up lists of potential investors, prepare investment documents, conduct correspondence and meetings. At the same time, you need to develop in order not to waste time and not miss an idea. Cooperation with an incubator startup or accelerator will significantly speed up the process of obtaining investment. Investors are frequent guests of such sites, and many of them organize their own accelerators.
How to evaluate startup
This is sometimes necessary at several stages: to get a vital investment or to sell a successfully launched idea. There are several methods for determining the value of a business; they involve the analysis of a number of indicators. Most often, such projects are priced using the future profit method according to a hypothesis, which is partially confirmed by the first sales. To conduct an assessment, you need to obtain data on revenue, risks, profitability, loss ratio, and other parameters – as a rule, from another company from the same business area.
As a result, entrepreneurs and investors receive a visual tool on the basis of which a decision is made: is this the best startup for their purposes or not. Financial reports, tangible and intangible assets, company size, market conditions, competitive advantages are accepted as initial documents for the assessment.
For profitable startups, the following basic methods are used:
- Discounted cash flow. This is a calculation of future financial flows, more often used for very young businesses.
- Valuation using multiples (coefficients) based on data from a comparable company.
- Calculation of the value of net assets.
Unprofitable businesses are more difficult to assess. For this, the Berkus method is usually used, which involves the assessment of key parameters. These include a business idea, prototype, team, strategy and sales plan. The method of summing up risk factors, scoring, and venture capital is also used.
The SION Patent Tax Law firm team, along with these methods, uses Due Diligence – a comprehensive audit that helps to determine the financial and legal viability for obtaining investments. Due Diligence is just beginning to be applied, but we managed to gain good experience in its use. It is worth being prepared that different methods can show different numbers.
How to promote a startup business
In order for the project to “grow up”, it will have to be constantly developed, proven the validity of the idea, and promoted among the target audience. There are already proven and effective channels for marketing promotion. For example, among them:
- contextual advertising;
- search engine optimization (SEO);
- social networks, YouTube and your own blog;
- crowd marketing to increase awareness;
- publications in thematic media;
- placement on platforms and catalogs (say, ProductHunt or dou.ua);
- thematic conferences, exhibitions and other specialized events.
There are special sites on the Internet for investment promotion and attracting financial support. For example, venture accelerator EX1P and others. At the same time, the choice of a startup promotion model directly depends on its industry and target audience. These factors need to be considered when developing a marketing strategy.
How to register a startup
A startup is a set of intellectual property, the rights to which must be registered for protection from competitors. A technology or product must be patented. First, a patent search is done, which will save from infringement of existing patents. Working out and registering an idea to the smallest detail at the earliest stage will save you from collapse in the future, so a thorough patent search should not be neglected.
Patenting will allow donors to take the idea more seriously. It will also protect the organizers of the project from unfair actions of investors. Not to mention protecting the product from being copied and reproduced by competitors. The registered rights can be sold or transferred. A unique technological idea is patented, and all parts of the project are drawn up:
- technical (as an invention or utility model);
- graphic (logo as a TM or a promotional sample; site layouts, photos, illustrations as objects of copyright);
- text (name, domain name is registered as TM; text descriptions – as a literary work);
- audiovisual (as objects of copyright).
Before launching, a startup must be legally registered business, this is very important for legal activity and investment attractiveness. You can register as an individual entrepreneur / sole proprietor (usually for the IT sphere) or LLC. Depending on the market in which the project is planned to be implemented, this can be done in Ukraine or abroad.
Choosing a jurisdiction for registering a startup
It is important to determine the country: some jurisdictions are more attractive for registration than others. The choice of country and legal status will affect the taxation and investment attraction scheme. It should be noted that foreign investors reserve the choice of jurisdiction for the investing execution. For our part, and from the point of view of experience, we propose to initially formalize a business under UK law.
Our company is engaged in patenting, trademark registration, objects of copyright in Ukraine and other countries. In some cases, the process is slow (patenting takes up to several years) and always requires payment of fees. However, legal protection of rights begins from the moment of filing the application, and not after the issuance of the title of protection. Therefore, we advise you not to delay.
The SION specialists conduct a comprehensive analysis of the startup idea for success and profitability, help with registration of intellectual property rights in the required countries, register a legal entity in the UK, USA or other jurisdictions. We provide services in choosing a tax regime and planning, prepare for communication with an investor, organize a pitch session and legally accompany an investment transaction. If necessary, we will continue to legally support the activities of the startup.
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