A startup is a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to market. By its nature, the typical startup tends to be a shoestring operation, with initial funding from the founders or their friends and families.
One of the startup's first tasks is raising a substantial amount of money to further develop the product. To do that, they have to make a strong argument, if not a prototype, that supports their claim that their idea is truly new or a great improvement to something on the market.
Though a vast majority of startups fail, some of history's most successful entrepreneurs created startups like Microsoft (founded by Bill Gates), Ford Motors (founded by Henry Ford), and McDonald's (founded by Ray Kroc).
In the early stages, startup companies have little or no revenue coming in. They have an idea that they have to develop, test, and market. That takes considerable money, and startup owners have several potential sources to tap:
- Traditional funding sources include small business loans from banks or credit unions, government-sponsored Small Business Administration loans from local banks, and grants made by nonprofit organizations and state governments.
- So-called incubators, often associated with business schools and other nonprofits, provide mentoring, office space, and seed funding to startups.
- Venture capitalists and angel investors actively seek out promising startups to bankroll in return for a stake in the company once it gets off the ground.