Inventors and new entrepreneurs often don't have enough money to turn their ideas into reality. They seek investors – people who are ready to lend. If the idea of working and giving up part of your profit is unappealing, you can find a partner who is not only able to contribute materially but also to take an active part in the creation of the product, sharing the responsibility, risks and achievements.
|As a rule, these contributions are made by relatives or friends who see the potential in the emerging business idea and are prepared to take on the risk of loss. The invested capital gives the project its initial boost.
|Venture investment stage
|Wealthy private investors are called ‘business angels’. They may become interested in a start-up after evaluating efforts already made, as well as the company's short and long-term plans. They often invest money in return for a share of the company. Sometimes investors end up managing the project directly based on their experience, as quite often, they themselves are native to the sphere in which they are implementing the new project.
The following stages of start-up development are marked with letters of the Latin alphabet.
|The company has full-time, in-house staff, managerial positions for the founding owners, and an understanding of its vision and direction. It needs investment to enter new markets, accomplish new sales plans and plug possible gaps in cash flow.
|A marker of a successfully developing start-up, which aspires to become a fully-fledged, serious business, would be indicated by products and services that are well known, with high sales rates. A change of roles takes place – the entrepreneur no longer pursues investors, but they pursue him.
|The key objective of the start-up changes. The company now seeks a way to dominate the market.
|There is no particular trajectory for development. Perhaps, instead of going to investors, the company goes public and lists its shares on the stock market.
Now let's look at the situation through the eyes of an investor, who wants to understand who this new entrepreneur really is, while evaluating the appropriate funding and chances of success.
|Working as a hobby
|Such entrepreneurs turn their hobby into a source of income and work only for themselves. Examples of this could be a qualified coder from Silicon Valley who simply loves programming, which is why he writes code for a living, or a Californian coastal surfer who teaches his craft to pay the bills, so he can carry on riding the waves.
|Small business to support a family
|Homeware stores, hairdressing salons, travel agencies, online stores and building companies are just some examples of small businesses. Such companies usually have a stable revenue, and as a rule, are not designed to grow. They do not require investment because their founders value their status as the sole business owner. Small entrepreneurs' finances are limited to personal savings and loans from relatives and banks.
|Born to grow
|Status is ingrained into the objectives of Silicon Valley entrepreneurs and their investors. Google, Skype and Twitter are only the latest examples of ventures whose founders believed that their visions will change the world. Their main goal is to get a share in a public company and sell stocks, demand for which will bring multimillion-dollar profits. Growing companies require large capital investments and are always on the hunt for a business model capable of guaranteeing growth. As soon as they find it, their efforts concentrate on rapid growth, which requires even more investment.
|Start-ups for sale
|Developing a web or mobile application doesn't require a lot of time. If you have a good idea and some money from relatives and private investors, you can create a product and find a niche in the market. Such companies are, as a rule, sold to larger ones and their founders and investors are content with millions rather than billions.
|Social start-ups to make a difference
|Socially minded entrepreneurs want to make the world a better place instead of cornering the market to enrich their shareholders. Such companies can be non-commercial, commercial or a combination of both.
|‘Innovate or die’
|Large companies are created according to this principle and concentrate their efforts on increasing efficiency and optimising expenditure. It is not enough, however, to concentrate only on improvements to the existing business. Any corporation has to contend with external threats and innovate if it is to survive and grow.
Each type of start-up has financial objectives and strategies for attracting finance. It would be incorrect to look at start-ups as smaller versions of larger companies. The latter implement proven business models, while start-ups are temporary organisations, designed to locate a transferable business model capable of growth.
We conduct market monitoring and develop new commercial products: applications, websites and services. At EDISON, we are happy to discuss new projects to implement profitable products together. We especially value the emergence of promising ideas among staff members. Indeed, we are willing to invest not only in ideas but also in the development of their creators.