What defines a company as a startup

What is a start-up company?

Table of Contents

  1. The start-up phase
  2. Financing options for start-ups
  3. Legal basis for founding a startup
  4. The business plan
  5. Subsidies for counseling
  6. Risks in founding a start-up

A Start-up is usually founded with a small amount of start-up capital. In order to be able to expand the business and to strengthen the capital base, start-ups often use venture capital or seed capital.

The start-up phase

In the real sense, the term start-up refers to an early phase of the establishment of a company (company formation, legal form). In addition to the innovative idea, a well-developed business model is required to found a start-up. It must be possible to adapt this to different scenarios. A detailed business plan is also the core of a start-up. This often decides whether investors can be found for the young company.

Financing opportunities for startup companies

Start-up companies usually start out with little equity and therefore try to find other financing options very quickly. A common way of raising capital is venture capital or business angels.

Would you like to be Startup to fall back on venture capital, you sell shares in your company to venture capital companies. They specialize in this type of business and can often not only help young start-ups financially. In return for the shares, the start-up receives capital, which is used to drive the start-up's growth. This is exactly how the principle of a business angel works. However, this is not a society, but an individual. It also differs from venture capital in that business angels support the start-up shortly after or during the establishment. The business angel not only provides financial support, but also brings know-how and contacts to the young company in addition to capital.

Legal basis for founding a startup

The establishment of a company begins with the start of business activity. This is preceded by a business registration or a registration of a freelance activity at the tax office. The company founders then have to deal with further formalities. This involves, for example, membership in the regional IHK, which is mandatory. The only exceptions are in the case of commercial activity in the travel sector, if the entrepreneur is assessed for trade tax.

If a company is to be founded in a trade that requires approval, the founder must have a master craftsman's certificate. A similarly restricted freedom of trade applies in many different branches of trade, industry and services. The exercise of the profession and the establishment of a company are linked to certain requirements. Such requirements exist, for example, with insurance agents, pharmacists, arms dealers and restaurateurs.

Since December 28, 2009, founders have been able to electronically process all the formalities required to start their own business. The basis is the EC Services Directive.

Other bodies such as the tax office, the state statistical office and the employers' liability insurance association are automatically informed when a company is set up.

The business plan

Funding and other grants are of great importance for a young company. In order to be able to apply for funding, a fully developed business plan must be available. It is written down in as much detail as possible who the founders are, what the business idea is, how the product is made and the market is structured. On the basis of the business plan, supporters have the opportunity to get an idea of ​​the expected success of the startup. It also has a business plan for a startup additional advantages:

  • It offers the possibility to control the success of the company.
  • Founders find out where there are gaps in knowledge and where problems can be expected.
  • The chances of success are increased.
  • Risks can be better assessed.
  • Dependencies between the company and the various stakeholders become more visible.
  • It serves as a reliable basis for a company manual to be drawn up later.

Subsidies for counseling

Extensive advice is necessary before starting a company. The individual federal states offer grants for this. Useful information on this can be obtained from funding institutes, handicrafts, chambers of industry and commerce.

Even after the establishment, you can take advantage of advisory assistance. There is, for example, the “Startup Coaching Germany” funding program from the European Social Fund. There are special funding rates for the establishment and the first five years of business activity. You can apply for further help from the “Funding of management consultancies for small and medium-sized enterprises and liberal professions”, for example.

Risks in founding a start-up

There are many risks involved in founding a startup and in the first few years of business. First of all, the inexperience of the founders should be mentioned here. Since they are often very young, they often have little experience in corporate management. Furthermore, at the beginning it is often not yet clear whether the product can be developed in the required quality. Nor can it be predicted whether the market will accept the product at all.

These reasons are mainly responsible for the fact that very few startups are successful. As a rule, seven to eight out of 10 young companies fail. The other 1 - 2 do not show the growth they had hoped for. Usually only 10 percent of young entrepreneurs achieve the desired success.

This low success rate is also linked to the return expectations of investors. In order to regain their capital, a successful one of their companies has to make up for 9 unsuccessful ones.

The main reasons for failure included the following:

  • A product has been developed for which there is insufficient interest
  • The money reserves were exhausted
  • The founding team did not fit together

 

Christian Weis