A start up business is a newly created company that is in the process of being set up in order to operate in the chosen industry of the founders. Huge numbers of start up businesses were created when the internet first became widely available and its popularity started to grow, and this is when the term was created.
A start up company is in a very early stage of the business set-up, and is likely to have high costs initially as all of the equipment; buildings and other assets are put into place.
The business, at this stage, is a high risk for investors, but there is also the potential for high returns, particularly if it is a high tech field that the company operates in.
Investment options for a start up business
Many start-up businesses are initially funded by the founders, if only a small amount of capital is required. However, if a larger amount is needed, perhaps as an investment in expensive equipment, then outside funding will need to be obtained.
Bank loans. Many founders are initially reluctant to bring in outside investors, so taking a bank loan is a good option because it enables them to retain full control over the business and the way in which it operates.
Venture capital. This is money provided to start up businesses, usually those with high potential but also high risk, in return for shares in the company. Venture capital is often provided from a professionally managed fund, so those who invest are not directly risking their own money.
Angel investors. This is similar to venture capital in that cash is provided in return for shares in the company. However, angel investors are usually individuals who choose to invest their own personal funds. They are often retired entrepreneurs who are looking to help those just starting out. It has been shown that start up companies who are funded by angel investors are the most likely to succeed out of all start ups.
Risks of a start up company
There are numerous risks involved with starting up a business; these are some of the main ones that you should take into consideration.
Loss of investment is a very real concern when it comes to a start up business. As many are self-funded, you will end up investing your savings or borrowing your initial capital, which is at risk if the business does not succeed. Depending on the business model, your personal assets, such as any property you own, could also be at risk if you are sued. A limited liability model can help you avoid this, but it is more expensive and time-consuming to set up.
Loss of time is something you may not have considered, but it is important. When you are running your own business, you could end up spending the majority of your waking hours working.
Business loans can now affect your personal credit rating; this is more of a concern if you are behind on your payments for any business loans, but it is something you should take into consideration.