What is a Startup?

Welcome to the Investors Trading Academy talking
glossary of financial terms and events. Our word of the day is “Startup”
The term “startup” has been bandied around with increasing frequency over the past few
years to describe scrappy young ventures, hip San Francisco apps and huge tech companies.
According to Merriam-Webster, start-up means “the act or an instance of setting in operation
or motion” or “a fledgling business enterprise.” The American Heritage Dictionary suggests
it is “a business or undertaking that has recently begun operation.” Therein lies
the rub – to be a startup, you must have set up shop recently.
Though there are no hard and fast rules on defining a startup since revenues, profits,
and employment numbers shift drastically between companies and industries, we’ve filtered
out the chatter of coworking spaces and hoodie-wearing employees to start concretely defining a startup.
A startup is a young company that is just beginning to develop. Startups are usually
small and initially financed and operated by a handful of founders or one individual.
These companies offer a product or service that is not currently being offered elsewhere
in the market, or that the founders believe is being offered in an inferior manner.
Because startups have a high failure rate, would-be investors should consider not just
the idea, but the management team’s experience. Potential investors should also not invest
money that they cannot afford to lose in startups. Finally, investors should develop an exit
strategy, because until they sell, any profits exist only on paper.

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